Taiwan’s banking sector is likely to see another loss-making year and post minus 0.5 percent return-on-assets (ROA) this year — the worst-performing among its peers in the Asia-Pacific Region, Fitch Ratings Ltd forecast yesterday.
That will be worse than the sector’s two previous loss-making years in 2002 and 2006, when corporate bad loans and credit card and cash card defaults dragged down the ROA to minus 0.48 percent and minus 0.03 percent respectively, Jonathan Lee (李信佳), senior director of the financial institutions group at Fitch’s Taipei branch, told a media briefing.
“The local banking sector has been doing poorly in diversifying sales of its financial products and internal risk control,” Lee said.
The sector is now facing mounting pressure to recapitalize since the average capital adequacy ratio is likely to drop to 6 percent, below the statutory 8 percent, he said.
Banks in Taiwan and Japan, which Fitch forecast would register an averaged 0.1 percent ROA this year, will underperform other Asian countries, including the two most profitable in Indonesia and Malaysia, which are forecast to report a 1.3 percent ROA and a 0.8 percent ROA respectively this year, he said.
Compared to its peers in the US and the EU, Fitch said the Asian banking sector would weather the recent financial crisis quicker and better. The ratings agency forecast Asian economies would see an averaged 4 percent GDP growth next year, up from a projected growth of 0.4 percent this year.
As of late last month, the global banking sector has raised US$1.041 trillion to write off losses totaling US$1.259 trillion, while the banking sector in North America has raised US$573.8 billion, not enough to write off losses of US$847.5 billion, Lee said.
Like its European peer, the Asian banking sector has raised US$71.1 billion, more than enough to write off its exposure of US$33.3 billion, which shows that the region has “the strongest financial strength, plus, Asian economies also are forecast to rebound the strongest [next year],” Lee said.
But Lee expressed concern over the insurance sector, which he said would incur worse-than-expected losses this year because of unprofitable overseas investments and a negative interest spread.
He said the government’s planned Insurance Stability Fund with a capital pool of around NT$16 billion (US$481 million) would not be enough to rescue insurers in difficulty, when compared with the Financial Restructuring Fund’s NT$450 billion for bailing out banks.
In response, Wu Chung-chuan (吳崇權), deputy director of the Financial Supervisory Commission’s insurance bureau, said the bureau was mulling measures to facilitate an exit mechanism should some of the nation’s troubled life or non-life insurers require a bail-out from the government.
Wu, however, yesterday downplayed questions as to whether and how the commission planned to enlarge the insurance fund’s size.