Nomura Holdings <8604.T> and billionaire investor George Soros have cut their stakes in Taishin Financial <2887.TW> to about 1 percent each from about 3 percent last year, marking the latest exodus by foreign investors from Taiwan's over-banked market.

Soros thought that Taishin's problem is an indication of Taiwan's problems, said Welch Lin, chief financial officer of Taishin.

The industry is over-banked. The spread is the second-lowest in Asia after Japan. There needs to be consolidation, Lin told reporters on the sidelines of a business event.

A crowded market and limited access to the huge China market have weighed on Taiwan banks. Their return on assets in 2011 was 0.53 percent, the lowest among banks in Asia excluding Japan, according to Fitch Ratings in Taiwan.

Private equity fund Newbridge Capital cut its stake in Taishin to 6.55 percent in December from 14.82 percent, including selling a 3.45 percent part to Cathay Financial <2882.TW>, Taiwan's largest financial holding firm, for $155 million.

Newbridge sold the remaining 3.1 percent stake to a group of investors led by Taishin's chairman, Lin said.

Carlyle Group has begun the process of selling its stake in Taiwan's Ta Chong Bank Ltd <2847.TW>, and smaller rival Longreach has started a similar process to sell its stake in EnTie Bank <2849.TW>, sources have said.

(Reporting by Faith Hung; editing by Jonathan Standing)