The industrial and rating outlooks for Taiwan's banking system remain stable, backed by the nation's growing cross-strait trade, expectations of improved ties with China and macro-economic stability, Moody's Investors Service said in a report yesterday.
But, “inflationary pressure and concern about the US economic slowdown persist, although they have yet to have an impact,” Moody’s analysts Cherry Huang (黃嬿如) and Richard Lung (龍燕康) wrote in the report.
The analysts said neither the nation’s consumer loan crisis or the US subprime mortgage problem in the past one to two years had actually developed into “full-scale system shocks” to the banking sector, but rather threats to banks’ earnings.
Nonetheless, they warned that persistent growth of low-yielding mortgages and construction loans is a concern to the system’s outlook, “as over 30 percent of the banks’ exposures are real-estate related.”
Taiwan’s 38 private and state banks have been experiencing thinner profitability because of structural problems and a slow pace in industrial consolidation.
Although several foreign lenders such as Citigroup, HSBC and Standard Chartered have come to absorb the distressed local banks in the recent past, the foreign presence has so far had limited implications on the industry because of their relatively small business scale in the domestic market, the report said.
On the other hand, the government’s efforts to reduce its stakes in the state banks were challenged by political and social opposition.
“Undue competition will persist until more constructive M&A [merger and acquisition] deals and more meaningful geographical diversification occur,” Huang and Lung wrote.
The analysts’ commentary was part of Moody’s latest report, titled Asia Banking Outlook 2008.
In addition to Taiwan’s banking system, the industry and ratings outlooks for the banking systems in China, Hong Kong and Mongolia are also stable, the report said.
The only exception in the survey of 15 regional systems in North Asia is South Korea, where the industry outlook is negative — owing to risky liquidity management and slower economic growth — but the rating outlook is stable, Moody’s said.
Deborah Schuler, a Moody’s senior vice president, said in a statement that Chinese banks’ financial fundamentals have improved because of recapitalizations and reductions in problem loans, while banks in Hong Kong are benefitting from very experienced management teams.
“In the case of Taiwan, the macro-economic environment is stable, although it warrants close monitoring, and in Mongolia, the banking system is benefiting from a natural resources-driven boom,” Schuler wrote.
Looking ahead, the report said the coming 18 months will see slower loan growth and a moderate increase in non-performing loans for regional banks. Moreover, higher funding, operating and credit costs will likely take a bite out of these banks’ incomes next year, it said.
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