Having shed his suit and tie and rolled up his sleeves, Feng-Li Tran, general manager of Cathay United Bank's branch in Chu Lai, Vietnam, is seated at a roadside stand in a small industrial town in central Vietnam, hundreds of kilometers from both Hanoi and Saigon, chatting amicably over drinks in fluent Vietnamese with executives of local state-run enterprises.

Without batting an eye, Tran digs right in to local favorites like dog meat hotpot and even deep-fried silkworms. The five or six men gathered at the table pass a single beer glass among them, a far cry from the eating and drinking habits extant in Taiwan.

"In Taiwan we'd reckon this to be unsanitary, but in Vietnam sharing a communal glass indicates a sufficiently deep personal bond," Tran says with a chuckle. "In Vietnam, establishing a personal bond with clients is paramount in the banking business. If you have good personal relationships and mutual trust, there is no need to compete on the basis of cost. Old clients will bring new clients to your door."

Last year, Cathay United bested numerous foreign banks in Vietnam, among other things becoming the lead underwriter of a US$60 million syndicated loan to state-run carrier Vietnam Airlines, relying largely on expatriate operatives like Tran who are now reaping the fruits of seeds sown years ago.

Taiwanese financiers like Tran are becoming increasingly numerous in Southeast Asia. Following their successes in gaining a gradual foothold in the China market, Taiwanese bankers have begun to turn their attentions to Southeast Asia. Unlike with previous endeavors under the "Go South" policy of former Taiwanese president Lee Teng-hui, this second wave of banks moving into the region is purely voluntary.

Stifled in Taiwan, New Vistas Overseas

In March of this year, E.Sun Commercial Bank bought a 70 percent stake in Cambodia's Union Commercial Bank and set up a representative office in the Burmese capital of Yangon.

At the end of last year, Cathay United acquired a 70 percent stake in Cambodia-based Singapore Banking Corp., Ltd.

First Commercial Bank is actively seeking acquisitions in Burma, Thailand and Indonesia. Chinatrust already has joint venture subsidiary banks in Indonesia and the Philippines and is now actively seeking opportunities to expand its presence in Thailand, Malaysia and other areas.

Buying up banks and setting up branches in the member states of the Association of Southeast Asian Nations (ASEAN) has become something of a trend, mainly because Taiwan's long stifled financial sector is enjoying a shot in the arm from international operations.

According to data from Taiwan's Financial Supervisory Commission, pretax profits from the overseas operations of domestically owned banks, including offshore banking units (OBUs), last year reached NT$73.5 billion, an all-time high. That was a 56 percent increase from the previous year and accounted for 30.6 percent of overall banking profits.

Bankers estimate 2012 profit growth from branches and subsidiaries in the ASEAN region to be over 60 percent, driven by explosive economic growth in the ASEAN economies.

"Domestic banks are overly competitive, and the move toward development of overseas operations has actually long been an inevitable trend," says Grace Jeng, executive vice president for overseas operations at First Commercial Bank.

The bread and butter of the banking industry is the interest rate spreads on lending and deposits. The average spread in Taiwan is 1.2 percentage points, while in ASEAN countries spreads can range from five to eight percent or even higher.

Indicators of the capital structure of Taiwanese banks, such as capital adequacy ratios and non-performing loan ratios, are the best seen in a decade. The "capital" from overseas expansion has indeed been "adequate."

"Taiwanese banks bring another advantage to bear, and that is the risk management experience gleaned from painful lessons learned in the past," says Joseph Huang, president of E.Sun Financial Holdings.

Crises the Taiwanese financial sector has weathered over the past decade or two have included the corporate finance crisis brought on by so-called "landmine stocks," the consumer financial crisis sparked by the credit card-cash card lending bubble, and the wealth management crisis that derived from the recent global financial crisis.

"Domestic banks have endured severe ordeals in virtually every major aspect of the banking business," Huang says, "and this has been enormously beneficial when entering unfamiliar new markets."

'ASEAN + 1' Concept Banks

The cumulative financial clout of Taiwanese banks has serendipitously encountered the financial liberalization of ASEAN. Cambodia, Burma and Thailand are all now in the process of gradually relaxing past financial restrictions in hopes of drawing in foreign investment and beefing up their respective financial sectors.

And with American and European banks otherwise occupied "putting out the fires" within their own parent companies, resulting in a reduction in their investments in Asian markets, Taiwanese banks have been presented with a golden opportunity to strengthen their positions.

"These big international banks used to be an object of emulation for the Asian financial sector, like a model student or even the teacher," says James Chen, president of Chinatrust Commercial Bank. "But in the wake of the financial crisis they are no longer the unassailable opponent for local banks that they once were," he continues confidently.

Equity stakes in ASEAN banks that are "waiting for the highest bidder" can now be had for a share price hovering around a price/book ratio of 2.5 to three, far higher than the 1.3 to 1.5 p/b ratios commonly found among Taiwanese banks.

Another reason Taiwanese banks are willing to pay a premium on acquisitions to get into ASEAN markets is the ongoing gradual economic integration of the various ASEAN member states, a development that will eventually include banks. Looking ahead, it will be far easier for local ASEAN country businesses to secure access to markets in other member states.

As E.Sun's Joseph Huang notes, in 2015 ASEAN members will form an "economic community" and perhaps as early as next year will dramatically reduce the barriers for setting up banks and other financial institutions in fellow member states, possibly even to the point of equal status with domestic financial institutions.

China is a member state of "ASEAN plus one" and may very well join as a full member.

"We established a joint venture subsidiary bank in Cambodia with an eye on more than just local business. Best case, we can go into China. Worst case, we have an ASEAN presence. That gives us a lot more flexibility with overseas deployments," Huang says.

"Establishment of a more comprehensive regional network is necessary to compete in an expanded market," says Chinatrust's James Chen of his bank's moves into Southeast Asia.

That expanded market to which Chen refers is China. Chinatrust's overseas presence now stands at 67 locations in 12 countries, and it boasts one of the most extensive networks of overseas branches of any Taiwanese bank.

Chen is blunt, acknowledging that China remains Chinatrust's top-priority overseas market, even though it continues to heavily regulate the operations of foreign banks. Add to that the longstanding presence of state-run banks in China, hundreds of times larger than their Taiwanese counterparts, and it's clear that one must distinguish oneself from the pack to compete.

Currently, four out of China's five biggest state-run banks are proceeding with internationalization at a relatively slow pace (the exception being the Bank of China), and their networks of overseas branches are limited. A comprehensive regional network that keeps pace with Taiwanese businesses and the internationalization of Chinese businesses is certainly a distinguishing feature and one that could allow "David to battle Goliath" in the China market.

Maintaining a Low Profile

On its second foray into Southeast Asia, Taiwan's banking sector is adopting a particularly soft posture.

Upon completion of its majority-stake acquisition of Cambodia's Singapore Banking Corp., Ltd., Cathay United Bank reassigned only three directorships and appointed a new bank president. Personnel moves among top-tier executives were similarly light-handed.

While still awaiting approval of its acquisition of 70 percent of Union Commercial Bank by Cambodian and Taiwanese regulators, E.Sun Commercial Bank made clear it had no intention of replacing the UCB's current chairman, stating it would replace only the bank president and the heads of UCB's IT and risk management departments.

"Banking is at its core an extremely local business. We need to regionalize and internationalize, and we cannot rely solely on Taiwanese business clients. We must first respect the local banks' existing staff and business models before considering further expansion of local business," says Alan Lee, Cathay United's executive vice president for corporate finance.

"Even if the parent company possesses more advanced technology and a superior management model, regardless of how big your equity stake is, when you enter a new market you want to work together with the original management team while maintaining a low profile, 'assisting' rather than 'directing' and by all means avoiding a 'big boss' mentality, if you hope to create more business opportunities," Lee emphasizes.

Lee notes that while Cathay United has held a 50 percent stake in Vietnam's Indovina Bank Ltd. for 13 years, its chairman has always been appointed from the senior management ranks of joint venture partner Industrial and Commercial Bank of Vietnam. Among top-tier executives and rank and file staff, 90 percent are Vietnamese nationals.

Lee believes that the trust engendered through retaining local staff has been a major reason behind Cathay United's success in breaking into the Vietnam market and why more than 80 percent of its operating revenue in the country derives from non-Taiwanese corporate business.

Integrating Multinational Services

It's not enough to simply maintain a low profile in a foreign land. Taiwan's banks must also adopt the trappings of a "multinational bank headquarters" in terms of vision, structure and preparation.

Many, including Cathay United, Chinatrust, and E.Sun, have organized internal overseas business management departments to standardize the operations of their various overseas institutions.

Over the past several years, for example, Chinatrust has sunk NT$2 billion into complete standardization of the computerized transaction systems of each of its overseas branches.

"It was definitely not something as simple as changing the software, because the laws and regulations differ from country to country. The system had to be capable of complying with the regulations in various countries while providing clients with the most efficient service possible, so considerable behind-the-scenes effort was required," Chen says.

Thus Chinatrust's legal department retained the services of more than a dozen legal experts from the various countries in which it operates to keep track of changes in the financial laws, tax codes and investment regulations in each country where it has a presence.

Taiwan's most extensive overseas financial management system sits in the basement of Mega Financial Holdings' Taipei headquarters.

"We spent two or three years constructing a complete video conference system and market intelligence reporting network," says Mega Financial Holdings chairman McKinney Tsai. "The idea was to be able to get a bead on changes in the operational circumstances in global markets as quickly as possible. Now I come down here every week for video conferences with managers in each country, reducing the need to travel abroad."

Besides the highly visible market intelligence reporting system, a new plan must be developed and a new system established taking into account the less conspicuous aspects such as personnel performance evaluations and the allocation of financial resources from various subsidiaries.

"If a Taiwanese corporate finance client wants to source financing in the U.S. and set up a plant in Thailand, we can provide them with comprehensive multinational service," Tsai says. "Using the system to distribute rewards to all the departments and personnel involved behind the scenes takes a lot of know-how."

Taiwan's banks are laboring to distinguish themselves on the key global financial battlegrounds of Asia amidst a reshuffle in the international financial order.

Translated from the Chinese by Brian Kennedy