Wed, Nov 01, 2006 - Page 12 News List

Investigations can help banking: report

STABLE OUTLOOK Retaining its positive view on the banking sector, Taiwan Ratings said the investigations into banking irregularities could help restore order in the market

By Amber Chung  /  STAFF REPORTER

The government's recent investigations into a string of financial irregularities will not have an immediate impact on the ratings of the nation's banking sector, a ratings agency said yesterday.

The government action, however, could help improve market order from a long-term perspective, it added.

"We think the ongoing investigations will be helpful to restoring market order in the long run if the regulator and prosecutors are committed to the task," Susan Chu (朱素徵), director of Taiwan Ratings Corp (中華信評), a local arm of Standard & Poor's Ratings Services, told a press conference yesterday.

Prosecutors yesterday raided the headquarters of China Development Financial Holding Corp (中華開發金控) in Taipei and questioned several management officials over the company's alleged illegitimate transactions and bribery of government officials in relation to its hostile takeover bid of Taiwan International Securities Corp (金鼎證券).

Two weeks ago, the offices of Chinatrust Financial Holding Co (中信金控) were also raided by pros-ecutors, with three high-ranking executives being detained for questioning over the company's investment in its larger rival, Mega Financial Holding Co (兆豐金控), earlier this year.

Chu said it was still too early to conclude that these alleged wrongdoings highlight systemic problems in the financial sector.

Taiwan Ratings has no plans of changing its ratings on the nation's banking industry at the moment, but it is concerned about corporate governance in the country, Chu said.

Corporate governance of Tai-wanese companies, especially those of family-run businesses, is indeed weaker than that in neighboring places like Hong Kong, Chu said.

However, not all corporate governance issues affect ratings, Chu said.

"We make rating downgrades only when major shareholders are involved in embezzlement, which could impact on the rated companies' credit and risk structure," she said.

Taiwan Ratings yesterday reaffirmed its stable outlook rating on the nation's banking sector with moderate credit risk.

In releasing its annual report titled Bank Industry Analysis: Taiwan, Taiwan Ratings analyst Eunice Fan (范維華) said: "The stable outlook is supported by a good economy, as well as the sector's adequate asset quality, capitalization and liquidity."

Chu said the biggest problem facing local banks now is weak profitability because of cutthroat pricing in this fragmented sector. Further deteriorations in profitability are likely to trigger downgrades, she said.

The government's policy flip-flop on issues such as industry consolidation and disposal of state holdings in the face of political pressure is another major concern, Chu said.

The banking sector's ratings may also be jeopardized if the volatility in policy changes, including deregulation and globalization, exceeds the tolerable range, she added.

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