Sat, Feb 06, 2016 - Page 14 News List

Banks’ earnings contract on Chinese branch woes

REVERSAL OF FORTUNE:Chinese branch earnings fell for the first time, by 45.8%. Overall, banks’ earnings slipped 0.2 percent, after having grown for nine years

By Ted Chen  /  Staff reporter

Pre-tax earnings by Taiwan’s banks last year contracted for the first time in nearly a decade, with their Chinese branches bearing the brunt of rising volatility and economic uncertainties, Financial Supervisory Commission data showed.

Last year, earnings by banks’ Chinese branches dropped 45.8 percent from the previous year to NT$1.97 billion (US$58.77 million), the first annual decline since local banks extended their reach into the country in 2010, data showed.

During the same period, Taiwanese banks’ offshore banking unit (OBU) earnings dropped 16.3 percent annually to NT$71.39 billion, while their overseas branches saw profits decline by 2.4 percent annually to NT$29.68 billion, the commission said.

In particular, OBUs reported a net loss of NT$340 million for the month of December, the first monthly loss in three years as macroeconomic factors dragged on lending.

Overall, Taiwanese banks’ earnings last year dipped 0.2 percent annually to NT$319.59 billion, ending a nine-year streak in annual gains, according to the commission.

The commission said the outcome reflected China’s slowing economic growth, with banks turning conservative toward extending their lending exposure in the country.

The yuan’s steep devaluation in August last year had eroded about NT$2.1 billion in profits among banks’ operations in China, Banking Bureau Deputy Director-General Jean Chiu (邱淑貞) said.

Chiu said that losses are amplified as financial reporting by banks’ offshore branches and OBUs are denominated in US dollars, adding that profits would have grown by about 12 percent annually if results were conveyed in New Taiwan dollars.

Although local banks’ Chinese branches reported losses of NT$550 million in December last year, their non-performing loan ratio was contained at a low 0.21 percent, she said.

Slow annual growth in banking earnings last year was due to a high basis set in 2014, and a number of increases in provisions against rising risk exposure in China, she added.

Earnings by Taiwan banks’ local branches maintained a 7.9 percent annual growth to NT$216.56 billion last year, driven by rising fees income and wealth management services.

For banks, fee income has been gaining share from net interest income, and is becoming an increasingly important top-line driver, Taipei-based CIMB Securities Ltd analyst Nora Hou (侯乃鳳) said in a note on Wednesday.

Fees income now range between 25 percent and 30 percent of Taiwanese banks’ total operating revenue, compared with less than 20 percent before 2009, Hou said.

“Fee income appeared to remain resilient throughout the tapering credit cycle and grew 15 percent annually last year,” Hou said.

Amid an uncertain economic outlook, the loan-to-deposit ratio of Taiwanese banks printed 73.8 percent for last year, lower than the 74.3 percent seen in 2009 during the global financial crisis, translating to about NT$9.05 trillion worth of unutilized funds, according to the commission’s data.

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