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Taiwan Commercial Banking Report Q4 2008
Business Monitor International, Jan 2009, Pages: 47
Taiwan Commercial Banking Report provides independent forecasts and competitive intelligence on Taiwan's commercial banking industry.
This report is being written at a time that the global financial crisis – which arose as a result of the evaporation of inter-bank liquidity appeared to be moving towards a resolution: the governments of the UK, the US and most of the larger countries in the euro area have all announced plans to make funds available – in one form or another – to their respective commercial banking sectors. As yet, it is too early to identify the impact of the crisis on particular emerging markets. However, in the regular section which discusses the changes which we are making to the report, we include a lengthy essay which attempts to identify the key issues. In essence, in the emerging markets (and, indeed, the developed countries) of the Asia-Pacific, commercial banks appear to be well placed to deal with the crisis. The same is, broadly, true of commercial banks in the various countries of the Middle East and North Africa. In Latin America, Chile, Brazil, Mexico and Colombia appear better placed than Argentina, Venezuela, Bolivia and Ecuador. South Africa’s situation appears to have much in common with that of Brazil. In contrast, Nigeria faces some of the same challenges as those that confront Venezuela. The positions of most countries in Central and Eastern Europe, however, are alarming.
It has not been practicable for us to collate the latest figures for bank assets and bank lending this quarter. The global financial situation has been changing so rapidly that most numbers would have become out of date. Nevertheless, we expect that, in coming months, it will become obvious that credit growth is slowing dramatically in most of the countries whose commercial banking sectors are profiled. We will amend the figures – and indeed our forecasts – accordingly.
Nevertheless we believe that the figures which we had compiled last quarter provide insights as to how the various commercial banking sectors will fare in the current, extremely uncertain, environment. We have therefore left them, and the comments on the Key Issues essentially unchanged. The figures on the tables above provide a snapshot of the banking sector in Taiwan and the changes that have taken place within it over the last year. To place the figures in context, it may be useful to bear in mind certain aspects of the 59 countries whose banking sectors are currently surveyed. Across this sample, the median growth in assets in local currency terms was 21.3% (in Colombia). The median loan growth was 21.6% (in India). The median growth in deposits was 17.9% (in Brazil). On their own, the ratios of loans to deposits, assets, and GDP mean little: however, they can provide useful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is 92.3% (in Greece). The median loan/asset ratio is 56.0% (in Poland). The median loan/GDP ratio was 63.9% in India.
From Q308, we have included a new section that examines the risks associated with each country’s banking sector in a new way. We have essentially sought to ask this question: to what extent will the banking sector likely need to source funding from banks in the rest of the world over the course of 2008. Given that the answer is not necessarily, on its own, meaningful, we have looked at other key issues such as the size and recent movement in the loan/deposit ratio, macro-economic developments and recent movements in financial markets.
Two general themes pervade the banking sectors of the Asia-Pacific region. The first is that the excess savings within Greater China and Japan remain enormous and are likely to grow. One expression of this will be the continuing growth in bank deposits that is, in absolute terms, considerably greater than the growth in lending. The second is that central banks have, in much of the region, been moving to tighten monetary policy. This has already had an impact on the behaviour of the banks.
As in previous reports, we include a SWOT analysis for Taiwan. The hard numbers suggest that an air of caution prevailed over the entire banking sector during 2007. In spite of a positive – if unexciting – economic environment, loan growth remained anaemic. It remains to be seen whether the election as President of Ma Ying-jeou – and the clear improvement in Cross-Strait relations – produces a more bullish approach on the part of Taiwan’s bankers in 2008. The improvement in relations with the mainland represent a wild-card for the long-term. Essentially, the question is: will Taiwan’s banks be allowed to leverage the key advantage that they have relative to banks from the rest of the world – a wholly Chinese language and culture – and develop substantial businesses in the mainland. In theory, the absolute size and growth potential of the mainland is such that it could be the El Dorado for the Taiwanese banks. In practice, many of the Taiwanese banks lack the scale (or, indeed, past exposure to brutal competition) to have high chances of success. If, by 2009, it has become clear that the mainland authorities are, in principle, inclined to encourage the arrival of the Taiwanese banks, one result may be a wave of mergers and acquisitions in a fragmented industry.
Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns: it does this by taking into account the size, growth potential and bancassurance potential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends on an assessment of the risks to the realisation of potential returns: this reflects our assessment of overall country risk, together with the regulatory and competitive environment. Taiwan’s overall CBBER is 70.8. Within the limits to potential return, the market structure is somewhat higher than the country structure – with scores of 73.8 and 63.9 respectively. Within the risks to the realisation of potential returns, the market risks and the country risks are much more evenly rated – with respective scores of 71.7 and 74.0.
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