ANZ will become the fifth major foreign bank to set up a subsidiary in Taiwan, following Citibank Taiwan, SCB Taiwan, HSBC Taiwan and DBS Taiwan, though it is yet to file an application with the regulator.One issue for ANZ is that the Financial Supervisory Commission frowns on banks operating under a dual licence. This view is in sympathy with the attitude of local lenders who chafe at the flexibility enjoyed by foreign banks, which can offer more generous loan terms to corporate borrowers through their foreign bank branches.Earlier this month, DBS Taiwan committed to cancel its foreign bank branch licence by 2013, once it upgrades to a subsidiary status."What we granted [Citibank, SCB, HSBC and DBS] was a full licence for a wholly owned subsidiary which has no restrictions on business scope, unlike that for the sole operation of wholesale or offshore business. So it seems unfair that they continue to possess both the subsidiary and the branch licences at the same time," Chang Kuo-ming, deputy director-general of the Banking Bureau under the FSC, told a media briefing last Thursday. Citibank Taiwan, SCB Taiwan and HSBC Taiwan, which show no sign of giving up their branch licences, continue to enjoy advantages in lending to larger borrowers - their branch licences allow them to lend up to 15 per cent of a lending ceiling tied to their parents' asset size, a cap that tends to be larger than that of their domestic banking subsidiaries.The bureau, however, will not consider taking the initiative in unilaterally revoking their branch licences, "which remain theirs to own", said Chang. Even if ANZ Taiwan were to successfully join the already over-crowded domestic banking sector, the experiences of the past few years is that foreign rivals don't really pose a threat to domestic lenders, says Eunice Fan, director of financial institution ratings at Taiwan Ratings, the local arm of Standard & Poor's.Foreign banks are often niche players that take no interest in traditional financial products with thinner margins, she says."Foreign players are found to be competitive in fee-based services such as sales of derivatives, wealth and cash management, which enjoy a higher margin," Fan says.As a result, foreign rivals often enjoy higher profitability in Taiwan. The five-year average of return on assets for foreign banks levelled out at around 0.8 per cent before late 2009, compared to the 0.2 per cent recorded by the domestic banking sector, S&P data shows.The domestic banking sector's ROA only caught up last year, to average 0.56 per cent, thanks to reduced loan write-offs.In 2010, foreign banks in aggregate reported an average ROA of 0.43 per cent in Taiwan, as a result of rising expansion expenditure.