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Taiwan Commercial Banking Report Q4 2011
Business Monitor International, Sep 2011, Pages: 66
Since Q108, BMI has described numerically the banking business environment for each of the countries surveyed by BMI. This is done through BMI's Commercial Banking Business Environment Rating (CBBER), a measure that ensures the latest quantitative information available are captured.
It also ensures consistency across all countries and between the inputs to the CBBER and the Insurance Business Environment Rating, which is likewise now a feature of our insurance reports. Like the Business Environment Ratings calculated by BMI for all the other industries on which it reports, the CBBER takes into account the limits of potential returns and the risks to the realisation of those returns. It is weighted 70% to the former and 30% to the latter.
The evaluation of the ‘Limits of potential returns' includes market elements that are specific to the banking industry of the country in question and elements that relate to that country in general. Within the 70% of the CBBER that takes into account the ‘Limits of potential returns', the market elements have a 60% weighting and the country elements have a 40% weighting.
The evaluation of the ‘Risks to realisation of returns' also includes banking elements and country elements (specifically, BMI's assessment of long-term country risk). However, within the 30% of the CBBER that take into account the risks, these elements are weighted 40% and 60% respectively.
Further details on how BMI calculates the CBBER are provided at the end of this report. In general, though, three aspects need to be borne in mind in interpreting the CBBERs.
The first is that the market elements of the ‘Limits of potential returns' are by far the most heavily weighted of the four elements. They account for 60% of 70% (or 42%) of the overall CBBER.
Second, if the market elements are significantly higher than the country elements of the ‘Limits of potential returns', it usually implies that the banking sector is (very) large and/or developed relative to the general wealth, stability and financial infrastructure in the country. Conversely, if the market elements are significantly lower than the country elements, it usually means that the banking sector is small and/or underdeveloped relative to the general wealth, stability and financial infrastructure in the country.
Third, within the ‘Risks to the realisation of returns' category, the market elements (ie: how regulations affect the development of the sector, how regulations affect competition within it and Moody's ratings for local currency deposits) can be markedly different from BMI's longterm risk rating.
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