Wawancara antara The Asian Bankers dengan Mr. Sean Chen

CEO Interviews and Transcripts
https://www.theasianbanker.com/A556C5/Journals.nsf/($All)/2D979274126D03B94825751200099061?OpenDocument
Published August 31, 2006

Transcript: Interview with Sean Chen, Chairman, Taiwan Cooperative Bank, August 18, 2006
Interviewed by Emmanuel Daniel

TAB: Please profile Cooperative Bank for people outside Taiwan. How would you describe the
bank?

TCB: I would like to share with you that this bank will celebrate its 60th anniversary in October.
It’s not the oldest in Taiwan, but this bank was established after World War II. At that time the
major purpose was to help the government in playing the role as the central bank for the
community financial institutions, which means credit cooperatives, farmers associations, and
fishermen’s associations.

TAB: How many credit cooperatives were there in Taiwan?

TCB: At that time more than 400.

TAB: And all of them were very small?

TCB: Very small. Community financial institutions were very small.

TAB: Would you say there was a policy bank as a result?

TCB: Yes, a de facto policy bank, but not legally.

TAB: In the years that it developed from the end of World War II, what was the profile of its
funding source and its asset base? How did that change over time?

TCB: At that time the government held about 60 percent of the shares. The remaining shares
went to the community financial institutions in Taiwan. You can understand when the
government was the single, largest shareholder, it played a very important role to lead the
direction of the bank. Until I took helm of this bank, it was not a public company. In November
2004, this bank became a public bank and listed in the Taiwan Stock Exchange.

TAB: Your background was that you were from the Ministry of Finance.

TCB: Yes, I started my career in the domestic banking institutions which include Taipei Bank,
which has now become Taipei Fubon Bank. I have been in the banking industry for 15 years,
then I have been asked to join the Ministry of Finance to carry out the so-called financial deregulation in 1989. At that time I also played the role as a banking supervisor. I led the socalled Bureau of Monetary Affairs. At present, it’s called the Banking Bureau under the FSC. I
also led the Insurance Bureau under the Ministry of Finance. Before the FSC was established, the Ministry of Finance was the financial service supervisory body in Taiwan. Before the
government reshuffle in 2001, I was the deputy minister of finance. After the government
reshuffle, I was asked to lead the Taiwan Stock Exchange as Chairman for two years. In 2004 I
was asked to take the helm of this bank.

TAB: When you were asked to take the helm of the bank after a very illustrious career as deputy
minister of finance and chairman of the Taiwan Stock Exchange, was there a mandate given to
you? Was this bank given to you as a project, almost?

TCB: Actually there was no written mandate. But I have been expected to achieve something.
This is an institution with a very long history. But bearing the policy, the function, if you have to
help those community financial institutions, financially speaking they are all very weak under the
competition with the major commercial banks. Traditionally speaking this bank bore the socalled
burden to help those community financial institutions. Shortly before I came to this bank,
there was another institution established. Legally that institution was required by the government, by the law, to support those community financial institutions.

TAB: What is the name of that institution?

TCB: It’s called Agricultural Bank of Taiwan (opened May 26, 2005).

TAB: In China, they have the same problem – they have hundreds of credit cooperatives but they don’t have a competent authority for the credit cooperatives, although the regulator is separate from the Ministry of Finance. It’s People’s Bank of China and the China Banking Regulatory Commission. When you have cooperatives competing for funds, competing for deposits together with commercial banks, they tend to be weaker. Very often they propped up by government in that sense. What is the situation in Taiwan and what’s the special position of Taiwan Cooperative Bank.

TCB: Since you mentioned the situation in China, I always say that China has 50 times the
population of Taiwan. When we have similar problems, their problems are always 50 times
bigger. In terms of the cooperatives institutions is somewhat different because China is a huge
country. Those community institutions still have a strong role. With Taiwan it’s highly dense.

TAB: You have to be big or nothing.

TCB: Those small-scale institutions don’t have much role to play or to compete with commercial
banks, especially after the financial deregulations which took place in 1990. Financially speaking
those institutions are weak, but politically speaking they are strong.

TAB: They are important?

TCB: Yeah, because they have a lot of members and each member has one vote.

TAB: That was the case in Taiwan already?

TCB: Yes, for a very long time.

TAB: When you came in from the stock exchange, what was the most important priority that you gave yourself?

TCB: At that time this bank was still, legally speaking, an agricultural bank. We have different
types of banking institutions. This bank at that time was chartered as an agricultural bank. That
was not a very profitable banking charter. I tried to change the status. The first step I had to allow this bank to enter the capital market to raise new capital easier than previously. Two weeks after I came here, I filed an application with Taiwan Stock Exchange. In three months this bank was listed in the Taiwan Stock Exchange and became a public company. I tried to change the structure of the shareholders. I persuaded the government, I persuaded the members of our
parliament and also persuaded the members of our union. Six months after the listing with the
exchange, we became privatised. It’s a very unique experience because when the government
released 13 percent of the shares they held, they were entirely taken over by our employees.

TAB: Give us a profile of the employees. The typical cooperative bank employee, are they from
the agricultural sector?

TCB: No.

TAB: They are bankers, then, and they’ve been here for a long time and have shown commitment to the bank?

TCB: Yes. That’s very interesting – when I first came here, I looked through the profile of our
employees. I found a very interesting thing. The first job of most of the employees is in this
bank. The only job in their lifetimes. You can see the loyalty of the employees and their
commitment to the institution. Most of the employees are highly educated. More than 60 percent are college graduates. I can explain that because this bank used to be a state-owned enterprise. The government held 60 percent of the total shares before the privatisation. Legally the employees of this bank have to pass the so-called Government Employee Examination so that they all meet certain standards. In such an environment without much competition, upon
graduation you already reach a certain level, the motivation and incentive program was not very
successful. I had to try to cheer up the morale of the employees.

TAB: Was the bank losing market share at that time, after or before the listing?

TCB: At that time, in the neighbourhood of eight percent of the market share in Taiwan. Deposits and also the loan portfolio. Actually that’s just a snapshot of the market share. If you compare the history, you can see the market share declining, always declining.

TAB: But it didn’t bother the staff or employees.

TCB: Yeah, because you are a government employee legally speaking. There was no incentive
program to encourage those employees to increase the market share.

TAB: When you took it to a listing, what was the story for the stock market? All the shares
available were taken by these employees or was the market interested in the bank?

TCB: That’s another interesting issue. Upon the IPO, theoretically speaking I had to persuade the government to set aside a small percentage to do the IPO. Under our legal framework the
government had no budget to raise the stocks debt yield for 2004. I had to persuade the other
small shareholders like the credit cooperatives that they try to set aside a small portion that they hold. Totally only one percent of the bank share had been put together and divested to the general public. In the year 2005, I persuaded the government to put that into the budget. That’s around 13 percent of the total shares at that time. Under our legal framework, when the government stock holding is under 50 percent, the institutions will be deemed as privatised. Any share release over 11 percent would be acceptable, but I persuaded the government to set aside 13 percent. Under our law, the state-owned enterprise employees can enjoy a priority to subscribe to stocks released by the government. I had to do an opinion survey to ask if you are interested to take over the shares. This was also a surprise to me. All the shares released by the government were subscribed by the employees. The amount was huge to the employees. It was NT$7 billion ($215 million). At that time we only had 6,800 employees. On average, every employee had to spend NT$1 million ($22,529) to subscribe to the shares, but they did. The privatisation procedure, of course you can imagine – I had to persuade the government, persuade the parliament, persuade the union… But generally speaking I would say that whole procedure went very smoothly.

TAB: What was the union’s opinion of this process? Were they afraid?

TCB: Yes. At first they were very suspicious about the necessity of the privatisation. After the
communication with them, they realised how important and meaningful the privatisation is to the future of this institution. As I told you, those employees are strongly committed to this institution, so they finally spent NT$7 billion to subscribe.

TAB: Most of the employees who subscribed were unionised people?

TCB: Yes.

TAB: During the IPO, what was the story? What was the plan for the bank? What was the story
that you were telling shareholders?

TCB: Frankly speaking we didn’t have much stories at that time. But because I have been in the
banking industry for a very long time, so when the structure of the board changed and the
chairman changed, a new president, a new CEO was appointed, the general public had a different
impression about this bank. Traditionally this bank has been considered a very old institution
without any motives to promote new financial products. When we showed the general public that
we have a different people here, that in the not distant future we will do something. At present
time maybe there’s no story.

TAB: What are some of the elements that you probably have started putting in place? Risk
management, cost of funds, branch re-engineering, some of the operational elements that you
may need to put in place.

TCB: For example, the customer relationship management. That’s very important because this
bank has a very large customer base in Taiwan. We have about 4.5 million customers. In Taiwan
there are only 23 million people. The market share is around eight percent. For such a huge
customer base, if you don’t an efficient customer relationship management system, that would be useless.

TAB: The reason why I keep asking about liabilities is because around the world the
cooperatives’ biggest problem is liabilities, building the deposit base. Very often it’s government
intervention and policy-based liabilities. Then that affects your ability to provide loans cheaply
and competitively. Also the landscape changes so some of your traditional commercial banks start encroaching in your…

TCB: Actually there was some misunderstanding. This bank carries the name cooperative but we are not a cooperative. In a cooperative, legally speaking, there’s one person one vote. In a
company one share one vote. It’s somewhat different. This bank is a company. Maybe before the
listing we were not a public company, but still a company with limited liabilities. It’s somewhat
different from the other institutions in the form of cooperative. In a cooperative you cannot raise
funds because no matter how many share you hold you still have one vote.

TAB: Basically it already has a discipline of a company?

TCB: Yes.

TAB: In terms of distribution network, are you very strong in Taipei or are you stronger in certain rural parts of Taiwan?

TCB: Every corner in Taiwan.

TAB: How many branches do you have?

TCB: Before the merger we had 184 [branches]. That was already the largest network. Now we
have 294, almost 300.

TAB: What are some of the initiatives that you’re pushing out right now? There’s customer
relationship management. Is there branch re-engineering? Is there process type of work that
you’re doing or staff incentive schemes?

TCB: We already conducted the traditional banking business, sometimes called core business: different types of deposit-taking, different kinds of commercial loans. They’re already there.
When you talk about the stories – after the IPO, when you list with the stock exchange, you got to have stories for the general public. At that time our story is that we are going to be privatised. We are going to find an ideal target to merge, to acquire, to try to expand our network. We also have new financial products through the CRM system. For example we didn’t have the wealth
management business. At the beginning of last year I set up a wealth management department
within the bank, and in every branch office in Taiwan we set up a special wealth management
counter. That’s quite a new thing even for our customers. Before that our customers outside the
metropolitan areas are grassroots customers. They don’t have the idea of wealth management.
They simply put the deposit with you and stick with you for their lifetime. We tried to educate our customers. “You can do wealth management with us.” It was also helpful for our profits.

TAB: When you made the acquisition of Farmers Bank, what were you acquiring? Were you
acquiring a large distribution base or were you acquiring a strong customer base? What was the
purpose of the acquisition?

TCB: This is another very complicated situation. In Taiwan the merger and acquisition activities
didn’t take place until four or five years ago. Those private commercial conglomerates like
Fubon, Cathay became very active and didn’t hesitate to show their ambition to acquire – not
only the small but also the big financial institutions. For example, Shihua Commercial Bank had
been acquired by the Cathay Group. Changhwa was acquired by the Taishin Group. Actually
Changhwa is even bigger than Taishin. The employees in the bigger financial institutions are
afraid and feel very unsecure because someday their institution will be acquired by the other
private financial conglomerates. They don’t like that. In the privatisation procedure, I discussed
and communicated with the members of the union. I understand what they are thinking. I told
them, “If you don’t like to be acquired by the other people, you have to take the initiative to
acquire the other people.” It’s not easy for us to acquire the private conglomerate. Our target is
the other institutions smaller than us, but the government also played a certain role. Farmers
Bank is one of the institutions which met our standard. At that time the government held 28
percent of that bank.

TAB: So if you divest that it’s a takeover.

TCB: They encountered certain difficulties in operating the institution so that’s a good chance for
us.

TAB: In that sense, how did you fund the takeover? Were the shares doing well?

TCB: We didn’t have to fund. In the merger case, you only offer the so-called share exchange.

TAB: Farmers was also a listed institution?

TCB: It’s listed with the stock exchange. After careful calculation of the net asset, we offered one
share for their 2.4 shares. That’s the exchange rate. Their shareholders accepted it.

TAB: What do you acquire as a result? With the association you are now the largest player in
Taiwan.

TCB: After the acquisition we are the largest. Before that we were the second largest institution
in Taiwan. At that time the market share was in the neighbourhood of eight percent no matter in
terms of deposit taking, loan or total assets. Farmers Bank held around two percent. After that we are holding now 10 percent.

TAB: Do you think the threat of potentially being acquired is over now?

TCB: It’s not over, but it make the other financial conglomerates more difficult to swallow.

TAB: In terms of career, actually your career is very interesting because you are a government
man, you were in the regulatory part of the business for a long time and then now you’re running
a business itself. How did these opportunities come about? Do you think that you made the
transition very well?

TCB: I don’t know. I didn’t intentionally make those transitions. As I told you, I started my
career in the domestic commercial banks for a very long time. When the government intended to
do the financial deregulation in 1989, they had to find someone from the banking industry to help
them. In our country, every government official has to pass a government office examination. For a senior government officer, there was another examination. I was the only one at that time in the banking industry who possessed those kinds of qualification because I passed the two different examinations.

TAB: Do you think that’s changing right now because the government is taking on people from
more commercial banks?

TCB: Now the legal framework is different. For senior people, they can be exempted from those
qualifications. For example, this afternoon if you go to the FSC, you can see all the members in
the commission. At present time [there are] maybe seven members. I think none of them passed the government office examination because most of them came from an academic area. Maybe they have academic qualification, but not the government officer qualification.

TAB: What’s happening to the career government officials? Are you familiar with Joseph Lyu,
the former chairman of Bank of Taiwan? He was also Minister of Finance for a while.

TCB: He left office two months ago.

TAB: I met him I think maybe two years ago. He was very passionate about Bank of Taiwan.

TCB: Actually he started his career in the foreign banking community in Taiwan. Unlike me, he
joined the government after the government reshuffle in year 2001.

TAB: The reason I brought him up is because is there a pressure on government leaders like
yourself in terms of scrutiny? Is there a kind of political pressure for you to perform that you have to be careful of what you do?

TCB: I don’t the other people [but] for me, [there’s] no such case.

TAB: It’s quite straightforward in that you’re given a mandate to run this bank and that’s it.

TCB: Yeah.

TAB: I was quite impressed with him when I met him. I don’t know the story of how things
happened but you get this impression that sometimes all this political pressure in Taiwan that
when you become too obvious certain political parties would look at you…

TCB: Personally I think that Mr. Lyu had a very strong pressure at that time when he took the
helm of the Bank of Taiwan. At that time he was the youngest chairman in the Taiwan banking
industry. He’s much younger than I.

TAB: How long do you think your mandate is going to last for Taiwan Cooperative Bank? It’s
two years, so how many more years do you think?

TCB: I don’t know. I’m getting older and approaching to retirement age.

TAB: What would you like to be remembered for when you finish this mandate? When they look
back what is the most important achievement for you?

TCB: When I came here, the only thing I wanted to do was to try to turn around this old
institution. This institution has a very long history and enjoys a very good reputation in Taiwan,
not only because of the performance in the traditional banking business but also of the role which
helped the community financial institutions to grow.

TAB: Is there an international component to what you’re doing? Are you setting up in Hong
Kong or something like this?

TCB: This institution used to be a grassroots institution and had no intention to have any
presence abroad. When I was a young banker in the other banks, I came to this bank to teach
them how to do the international banking business because this bank didn’t have any idea of the
international banking business. You can see how grassroots it is.

TAB: Because it’s so strongly grassroots, do the political parties interfere in the bank? Do they
have a grassroots influence as a result, like who you lend to and things like this?

TCB: When too many parties intend to interfere, there will be no influence because you can
simply say…

TAB: …no to all of them...

TCB: …and I have to be very fair to everybody.

TAB: So in the end you have taken the position of being fair to everybody although there is this
culture of trying to interfere?

TCB: Sure. I think they have all been discouraged.

TAB: Actually grassroots is very good, because many foreign potential acquirers will look at a
cooperative bank and say, “this is like a diamond because it gives you access right down to the
grassroots. It’s not exactly a very strong institution but it’s changing.” Foreign institution can try
to make an influence. Have you had any overtures, like foreign organisations coming to talk to
you?

TCB: Yes. We are quite open – open-minded and open attitude – to cooperate with the other
foreign institutions because we have a very large branch network. Any foreign institutions that
intend promote their financial products through our channels, we would be very happy to
cooperate and include their product as one of our wealth management products.

TAB: So using your distribution base?

TCB: Yes.

TAB: Tell me a little bit about your balance sheet in terms of profitability, in terms of
composition of loans, composition of funds.

TCB: The ROE/ROA of this institution was under the average of the entire banking industry in
Taiwan before 2004. When I came here we tried to make some improvements. I don’t intend to
mention the details, but I could share with you the result for the first half of this year or even the
first quarter of this year already exceeded the total profit of last year. You can see the
improvement.

TAB: So you do that by managing the cost very strongly, or…?

TCB: I tried to change the structure of our asset, of our liability.

TAB: What is the composition of the asset? Is it lending to small businesses, small farmers?

TCB: In terms of the SME lending, we are leading the industry. The problem is… when I say we
try to change the structure of our liability or asset, for example in our total liabilities, the deposit
from our farmers associations occupies a certain percentage, 20 percent. I tried to reduce the
percentage, because of the political consideration. When they deposit with us, we have to give
them a very favourable interest rate. That’s not good for our costs, so I try to reduce the
percentage and shift those deposits to other institutions like the one I mentioned to you, the newly established Agricultural Bank of Taiwan. I also try to change the structure of our asset
structure, like reducing the percentage of the loans extended to public enterprises, or the local
domestic government because you couldn’t enjoy the good interest rate from those customers.

TAB: What is your push in terms of the loan profile? Are you looking for longer tenure products
like mortgage or something like this?

TCB: Yes because we already have a very good performance in terms of housing loan or SME
loans. We simply impose some targets to our branches islandwide. That would be easier for us to
restructure our asset or liabilities. It will be very helpful to the profitability.

TAB: Do you raise funds in the market now?

TCB: We intend to do that before the end of this year.

TAB: Through equity?

TCB: Equity, yes.

TAB: Do you have a Moody’s rating?

TCB: Yes. BBB+.

TAB: Was it necessary to have a rating?

TCB: Actually we don’t need an international rating. Before that we only had the domestic rating.
I also asked S&P to give us an international rating, so that’s BBB+. It’s not necessary for us to
have an international rating because we don’t intend to go abroad and raise funds. That’s good for us because S&P will come here and talk to the people and the senior management so all the
persons feel the pressure. They will reconsider their position in the institution. For that, that’s
good enough.

TAB: Thank you very much.