Siew confirmed the combination - long expected by the financial industry - in informal comments to reporters. Executives of the three banks said they had not been officially notified of the merger. All three banks are wholly owned by the Ministry of Finance, making the merger an easy tie-up for state matchmakers. Their combined assets stood at T$3.712 trillion (US$117.46 billion) as of end-September 1999, according to finance ministry figures.

"The government is just trying to set an example for mergers, but these three institutions are a particular case because all are government-owned," said Norman Yin, finance professor at National Chengchi University.

"It is not really an example because it does not involve stock holders," said Yin, director of the university's Centre for Asia-Pacific Monetary Studies While Taiwan President Lee Teng-hui has advocated creating a National champion in the banking industry as the island gears up for World Trade Organisation entry in 2000, analysts said they saw few synergies between the three partners.

Bank of Taiwan is the island's largest commercial bank, while the Land Bank specialises in housing and real estate lending.

The Central Trust of China chiefly provides long-term funding for state development projects but also has insurance operations and warehousing and transportation businesses dating back to its origins as a government purchasing arm. "The trend of the 21st century is toward internationalisation and investment banking, but these three banks are not qualified," said Daniel Chen, executive vice president of the Industrial Bank of Taiwan.

"More importantly, they have the mentality of state agencies," he added.Even in the private sector, management attitudes and the lack of a legal framework prevents tie-ups while foreign banking giants prepare to swoop on the island once the World Trade Organisation opens Taiwan's market.

"Chinese people like 'face', and every bank has an industrial conglomerate behind it. They won'T let go of it unless they are nearly going bankrupt," Chen said. "The real urgency is only from a policy point of view. From a policy point of view, we are overbanked -- local Financial institutions, including credit cooperatives, won'T be able to compete with foreigners when we enter the WTO," he said.