Local rating agency ranks Taiwan banks second lowest in Asia

Banks in Taiwan averaged 0.6 percent in return on assets (ROA), to claim the second lowest ranking in Asia, trailed only by Japan, Taiwan Ratings reported on Tuesday.

The rate cuts recently implemented by the Central Bank and the low interest environment that emerged as a result have hurt bank earnings in Taiwan, said Andy Chang vice president of Taiwan Ratings.

Bank earnings are further hampered by the world's slow economic recovery and sluggish growth experienced by China and countries in Southeast Asia, the rating agency added.

Banks Hong Kong and Singapore registered an ROA of between 1 and 1.5 percent, while Chinese banks recorded a relatively high 1.5 percent and Malaysian banks' ROA ranged between 1.2 to 1.6 percent.

Among the banks in Taiwan, five recorded a higher ROA of between 0.8 and 1 percent. They are Bank of Taiwan Mega International Commercial Bank CTBC Bank Cathay United Bank and Taipei Fubon Commercial Bank These banks together constitute 34 percent of total bank assets on the island.

Amid the low interest environment and intense domestic competition, Taiwanese banks are increasingly looking for opportunities in neighboring countries, which present better profit potential.

Banks' Foray Overseas

Taiwan Ratings analyst Eunice Fan predicted that the five banks will step up foreign expansion efforts in the next two to three years.

They have stronger credit structure and greater overseas exposure compared with other banks in Taiwan, Fan said.

Wading into unfamiliar regions with more economic uncertainty requires prudential asset control and risk management, however. Otherwise, banks risk losing ground on their comparatively higher ROA, Fan cautioned.

Government Too Stringent

While the Financial Supervisory Commission has recently rolled out new measures, its speed of making new financial products available still fell short of expectations, Taiwan Ratings noted.

Taiwan lags in overseas market expansion, financial product diversification and finance-related innovation, Chang said, adding that it has had an impact on local bank earnings.

It is indicative of the FSC's conservative stance and its emphasis on systematic stability. The FSC's regulation on financial product target redemption forward (TRF) is a case in point. Because of the regulative measure, those who are in need of the TRF have turned to foreign markets like Hong Kong.

Source: China Post