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Taiwan’s banking sector is low-risk, report says

Taiwan’s banking sector presents the second-lowest risk after Saudi Arabia among key emerging markets around the world, a report released by Global Insight said.

Also ranked among the list of lowest risk countries are the United Arab Emirates (UAE), Malaysia and Slovakia, according to the Banking Sector Risk Rankings for 33 emerging markets, conducted by the US-based company.

The report said the banking sectors of Saudi Arabia, Taiwan, the UAE and Malaysia have the greatest prospects for stability because of their high capital levels, sufficient liquidity, strong bank management and prudent regulatory environments.

“Our strong rating for these countries carries a stable outlook with no significant deterioration of their present status expected in the near-term,” the report said.

The report said the biggest banking sector risks among the markets were in Ukraine, Hungary, Nigeria, Iran and Venezuela.

While the banking sectors in Venezuela, Iran and Nigeria suffer from strong political influence and unfavorable economic policies, Hungary and Ukraine see high foreign currency borrowing by banks and on-lending to unhedged domestic customers, the report said.

The report said the global credit crisis has had a relatively limited direct effect on banking stability in most emerging markets thus far, but pressures are starting to mount and the outlook has turned negative for the banking sectors of a number of major emerging economies.

Toby Wight, manager of Global Insight’s Banking Risk Service, said strong economic growth had contributed to rapid credit expansion in many emerging markets over the past several years, causing questionable credit risk assessment practices and asset price inflation.

“These risks are compounded in many instances by high levels of non-performing loans, poor financial sector regulation and the limited extent of economic reforms, all of which have further negative implications [on] bank stability,” Wight said.

For emerging markets in Asia, the report gave a negative outlook for China, Vietnam, India and Pakistan.

It said the Chinese and Vietnamese banking sectors presented high potential for instability because of excessive political influence and poor risk assessment and banking practices.

India and Pakistan have moderate levels of instability as a result of inadequate credit risk assessment capabilities and banking practices, it said.
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