Fri, Sep 22, 2006 - Page 12 News List

Taiwan's banking sector looks buoyant: Citigroup

By Amber Chung  /  STAFF REPORTER

The nation's banking sector is one of the top investment picks in Asian markets, as the industry is expected to see the most robust rebound in profitability in the region next year as the consumer credit abuse storm eases off, Citigroup said yesterday.

"Our 2007 forecasts show that Taiwan and China will have the strongest net profit growth ? among Asian banks," said the latest report released by Citigroup Global Markets yesterday.

Citigroup predicted a whopping 67 percent growth in the net profits of Taiwanese banks next year from this year, compared with an average 17 percent growth in the Asian banking sector.

The sharp earnings growth here is facilitated by a 26 percent decline in provision expenses as the credit and cash card bad debts are stabilizing, the equity research said.

Except for Taiwanese banks, provisions relative to loans will rise for Asian banks in the absence of write backs next year, it added.

For July alone, 44 local banks combined incurred a pre-tax loss of NT$7.33 billion (US$223 million), the first time they have been in the red since the beginning of this year, amid the fallout of the consumer bad loans, compared with profits of NT$12.55 billion a year ago, according to the Financial Supervisory Commission's latest figures released on Tuesday.

For the first seven months of this year, local lenders posted total pre-tax profits of NT$28.76 billion, down by 70 percent from NT$96.49 billion a year earlier, the figures showed.

Citigroup recommend investors overweight banks with strong earnings growth due to falling provisions or structural improvement in sector profitability, the ability and intention to increase dividends and offer high dividend yields, and the potential to be consolidated or with a stake that can be sold to strategic investors.

Top picks include Cathay Financial Holding Co (國泰金控), Fubon Financial Holding Co (富邦金控) and SinoPac Holdings (永豐金控) that respectively enjoyed 19 percent, 12 percent and 23 percent upsides in their share prices, the company said.

Shares of Cathay Financial rose 0.62 percent to NT$65.2 on the Taiwan Stock Exchange yesterday, while Fubon Financial fell 1.96 percent to NT$27.5 and SinoPac shares were unchanged at NT$15.25.

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