Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s, yesterday said the sluggish economy and low interest-rate environment could further constrain 14 domestic financial holding companies (FHCs) from returning to profitability over the next few quarters, in spite of better-than-expected earnings in the first half of the year.
“Local FHC groups recorded a slight improvement in their operating results for the first half of 2009, mainly due to a rebound in the performance of the global capital market,” credit analyst Eunice Fan (范維華) said in a report.
Fan said the profitability of FHCs was closely linked to their core subsidiaries, most of which were in the banking and life insurance sectors.
But these sectors are expected to struggle to turn satisfactory profit amid the prolonged recession and high competition in the sectors, she said.
“Only FHCs with a strong market position, diversified revenue stream and strengthened enterprise risk management will emerge from the recession with the ability to make sustainable improvements to their profitability,” Fan said.
As a result of improving investment incomes, local FHCs reported an annualized 0.42 percent return on average assets (ROAA) in the first half, up from 0.2 percent last year.
That remained weaker than the average ROAA of 0.6 percent reported between 2003 and 2007 during relatively benign market conditions, the analyst said.
Yuanta Financial Holding Co (元大金控), Waterland Financial Holding Co (國票金控), China Development Financial Holding Co (開發金控) and Fubon Financial Holding Co (富邦金控) outperformed 10 other rivals to report the top four ROAAs, at 1.6 percent, 1.56 percent, 1.13 percent and 0.78 percent respectively, in the first half of the year.