The nation’s financial industry suffers from low earnings capacity amid a highly competitive operating environment, according to the latest Banking Industry Country Risk Assessment: Taiwan report published by S&P Global Ratings on Thursday last week.
The high proportion of domestic banks owned by the state has led to “some distortions in the competitive landscape” of the industry, S&P said in a statement.
Bank earnings are likely to remain subdued within the fragmented local market, S&P said, adding that the earning capacity of local banks could improve if there was a “meaningful level of industry consolidation.”
To enhance industry competitiveness, the Financial Supervisory Commission last month said it would ease regulations to facilitate mergers and acquisitions (M&As), such as allowing financial firms to initiate M&As when holding only a 10 percent share of the targeted entity, down from 25 percent.
“However, we view the likelihood of this to be low over the next two to three years,” the ratings agency said in the statement.
The report said the funding profile of domestic banks is supported by the high level of deposits by stable core customers, while the industry benefits from the strong financial position of Taiwanese households, which helps mitigate high private-sector debt.
Stable economic growth, supported by a dynamic and entrepreneurial private sector, as well as the government’s property market measures and its close oversight of banks’ credit policies, all pose limited risks to the overall financial system, the statement said.
Based on its banking industry country risk assessment methodology, S&P said it has affirmed long and short-term issuer credit ratings of “AA-” and “A-1+” for Taiwan’s banking sector, with a stable outlook.
In its risk assessment report, S&P classified the banking sector of Taiwan in group 4, along with New Zealand, Malaysia, Mexico and Israel.
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