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Home > Reports By Country > Asia > Taiwan
Taiwan Commercial Banking Report Q3 2008
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Over the last year, the crisis in the inter-bank market, and the soaring prices of oil and other raw materials,tended to obscure several other important trends. In most of the developing world (i.e. the vast majority ofthe countries whose banking industries are surveyed by BMI), lending has been growing quickly. In manyemerging markets, inflationary pressures have been boosted by a rapid increase in credit. In a number ofemerging markets, macro-economic imbalances are evident.
The figures on the tables above provide a snapshot of the banking sector in Taiwan and the changes thathave taken place within it over the last year. To place the figures in context, it may be useful to bear inmind certain aspects of the 59 countries whose banking sectors are currently surveyed by BMI. Acrossthis sample, the median growth in assets in local currency terms was 21.3% (in Colombia). The medianloan 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 provideuseful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is92.3% (in Greece). The median loan/asset ratio is 56.0% (in Poland). The median loan/GDP ratio was63.9% in India.
From Q308, we have included a new section that examines the risks associated with each country’sbanking sector in a new way. We have essentially sought to ask this question: to what extent will thebanking 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 suchas the size and recent movement in the loan/deposit ratio, macro-economic developments and recentmovements in financial markets.
Two general themes pervade the banking sectors of the Asia-Pacific region. The first is that the excesssavings within Greater China and Japan remain enormous and are likely to grow. One expression of thiswill be the continuing growth in bank deposits that is, in absolute terms, considerably greater than thegrowth in lending. The second is that central banks have, in much of the region, been moving to tightenmonetary 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 ofcaution 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 asPresident of Ma Ying-jeou - and the clear improvement in Cross-Strait relations - produces a more bullishapproach on the part of Taiwan’s bankers in 2008. The improvement in relations with the mainlandrepresent a wild-card for the long-term. Essentially, the question is: will Taiwan’s banks be allowed toleverage the key advantage that they have relative to banks from the rest of the world - a wholly Chineselanguage and culture - and develop substantial businesses in the mainland. In theory, the absolute size andgrowth potential of the mainland is such that it could be the El Dorado for the Taiwanese banks. Inpractice, many of the Taiwanese banks lack the scale (or, indeed, past exposure to brutal competition) tohave high chances of success. If, by 2009, it has become clear that the mainland authorities are, inprinciple, inclined to encourage the arrival of the Taiwanese banks, one result may be a wave of mergersand 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 ofpotential returns: it does this by taking into account the size, growth potential and bancassurancepotential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends onan assessment of the risks to the realisation of potential returns: this reflects BMI’s assessments ofoverall 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 somewhathigher than the country structure - with scores of 73.8 and 63.9 respectively. Within the risks to therealisation of potential returns, the market risks and the country risks are much more evenly rated - withrespective scores of 71.7 and 74.0.
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