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TAIPEI -- Taiwan's government expects negotiations with Beijing to enable as many as a dozen Taiwanese banks to begin operating next year in China, offering a new but potentially risky opportunity for one of Asia's largest banking industries, the island's chief financial regulator said in an interview.

Sean Chen, chairman of Taiwan's Financial Supervisory Commission, said Monday that talks with China are proceeding toward an expected agreement sometime in the first half of 2009 on liberalizing banking ties between the two long-time rivals. Those talks are part of a broader detente under Taiwanese President Ma Ying-jeou, who took office in May, that has already seen the end of a decades-old ban on direct air travel and shipping across the Taiwan Strait.

A deal would give Taiwan's lenders access to a market they have long coveted -- although at a time when China's economy is slowing sharply from the double-digit growth it has enjoyed in recent years. Although Taiwanese companies are among China's top foreign investors, its banks have been barred by restrictions on both sides from serving the Chinese operations of their corporate clients -- losing that business to Chinese and foreign lenders.

Mr. Chen, who started his current role this month after a long career in government and banking, acknowledged the delay. "It is better late than never," he said.

He also warned that Taiwan's banks need to exercise caution about the China market. "We don't want our banks take [going to China] as a 'fashion,'" said the 59-year-old regulator. Taiwan's banks "mustn't blindly follow the opportunities," but rather should decide whether they have the capacity to do business and manage the credit risks in China, he said.

Chinese officials couldn't be reached for comment Monday night. But Beijing has unveiled a string of policies in recent months designed to strengthen economic and business ties with Taiwan. The two sides split amid civil war in 1949, but Beijing claims Taiwan as part of its territory.

Mr. Chen declined to say whether Taiwan will reciprocate by allowing Chinese banks to set up operations in Taiwan in the near future. But he did say that Taiwan "will consider Chinese banks as the same as other foreign banks."

Taiwan boasts Asia's fourth-largest sector by assets, but the market is highly fragmented, with more than 40 banks operating island-wide and hundreds of community lenders to serve the population of 23 million people. Since at least 2000, the island's banks have consistently posted average return on assets below 1%, a relatively weak reading.