Taiwan's banks face another tough year in their battle to restore profitability as operating conditions tighten across the sector, Standard & Poor's Ratings Services (S&P) said yesterday.
"At best, the profitability of Taiwan's banking sector will be moderate in 2007," Susan Chu (
S&P and its subsidiary released two reports, titled Is There Light At The End Of The Tunnel For Taiwan Banks? and Government Links: A Blessing Or A Curse For Taiwan Banks?
The industry's return on average assets nosedived to about zero last year from 0.3 percent in 2005, mainly because of spiraling card debts, S&P's data said.
This year, banks are likely to face further challenges to restore their profitability because of declining interest spreads, excess liquidity and slow market consolidation, the ratings agency said.
"Only top-tier private banks with the ability to secure new revenue or upgrade risk management procedures can expect to outperform their rivals or at least achieve satisfactory results this year," Chu said.
STRESSFUL TIMES
Meanwhile, depositors are expected to favor state controlled banks at times of tight liquidity or system stress.
"The government is more likely to provide financial support to state lenders of systemic importance or with irreplaceable policy roles during times of stress than to institutions without policy roles," credit analyst Eunice Fan (范維華) said.
The reports came as a handful of small banks, including Entie Commercial Bank (
MEDIA REPORT
Entie shares closed up 3.86 percent to NT$8.62 on the local bourse as the Chinese-language Commercial Times reported that the cash-strapped lender may sell up to 60 percent of its holdings to HSBC Ltd in two weeks.
Downplaying the news, Entie's deputy spokesman Lee Chih (
"We are in investment talks with more than one interested foreign investor but things have not entered the final stage yet," he told the Taipei Times yesterday.
For now there are no signs suggesting that the major shareholder might give up control of the bank, Lee said in a phone interview.
However, the result could come in the third quarter or the odds of success may decline because of increasing supply of takeover targets on the market as the government auctions off banks it has taken over, he said.
"No comment," Deborah Chang (
HSBC president Michael Smith also rebutted the report in a Central News Agency report.
The report, which quoted Smith as saying that there were many uncertainties that needed monitoring, including developments on the credit card front and the personal bankruptcy bill as the year-end legislative elections approach.
Entie plans to raise as much as NT$22.5 billion in new funds to make up its financial gap. The lender will secure a fund injection of NT$5 billion by the end of next month from existing shareholders.
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