Private banks are expected to outperform their state-run peers this year, thanks to growth in pre-provision operating profit (PPOP) and demand for Chinese yuan-based businesses, JPMorgan Securities said yesterday.
They could also reap significant benefits from deregulation in cross-strait business in the near future, the brokerage said in a report yesterday.
Since Feb. 6, local banks have been allowed to offer yuan-related business in Taiwan, after a cross-strait memorandum of understanding (MOU) on a currency clearing agreement was inked on Aug. 31 last year.
As of Wednesday last week, 60.26 billion yuan (US$9.82 million) was deposited onshore in Taiwan, more than three times the 18.5 billion yuan deposited as of the end of March and a jump from the 9.63 billion yuan deposited as of the end of February, according to central bank tallies.
“Profitability at yuan businesses will improve in the mid- to long term and deposit bases will become larger and more stable,” Jemmy Huang (黃聖翔), an analyst at JPMorgan Securities Taiwan Ltd, said in the report.
“Private banks are more geared to non-interest income,” which is likely to deliver more upside surprises than interest income this year, he said, citing Chinatrust Financial Holding Co (中信金控) and E.Sun Financial Holding Co (玉山金控) as the brokerage’s top picks among private banks.
Shares in Taiwan’s financial sector have risen 14.03 percent on the local bourse since the beginning of the year, outranking the broader market’s 9.08 percent increase, which analysts have attributed to positive earnings momentum in the first four months of the year and a slew of positive cross-strait business deregulation news.
“The cross-strait theme should provide further positive catalysts in the near and longer terms,” Huang said in the report. “However, it is crucial for regulators to improve infrastructure to facilitate trade flow and broaden the scope of investable yuan assets.”
JPMorgan therefore suggests Taiwan can expand the Formosa bond markets and negotiate for more qualified foreign institutional investor (QFII) or renminbi qualified foreign institutional investor (RQFII) quotas with China.
In addition, the brokerage expects more cross-strait strategic alliances in the near future after SinoPac Financial Holdings Co (永豐金控) last month reached a private placement deal with Industrial and Commercial Bank of China (ICBC, 中國工商銀行) to allow the latter to acquire a 20 percent stake in the Taiwanese company’s banking unit.
“There should be a tailwind for the sector, particularly for private banks,” Huang said in the report.