Fitch Ratings said yesterday that it is bearish about the outlook for Taiwan's banking sector for the next two years because of the extensive fragmentation in the market, banks' depressed margins and the cross-strait bans that constrain their development.
"We tend to be conservative about the future of the nation's banking industry," Jonathan Lee (李信佳), director of financial institutions at Fitch Ratings' Taiwan branch, said at a briefing yesterday.
Local banks are operating in a tough environment in which severe market fragmentation and a flattened yield curve have continued to narrow interest margins after the credit abuse crisis, Lee said.
The government should speed up privatization of state-run banks and allow market mechanisms to function in stimulating the consolidation of Taiwan's overcrowded banking sector, the analyst said.
As of July this year, the nation's state-controlled lenders held up to a 50 percent market share by assets, according to Fitch's data.
The Ministry of Finance, which manages state holdings, said last week that it planned to reduce the market share of state-controlled banks to 30 percent from current 50 percent through a series of disposals in the future. The ministry did not give a clear timeline for doing so, however.
Also, financial regulators should take a harsher attitude towards problematic banks and allow the market to eliminate these lenders, Lee said.
Weak profitability amid excessive competition has been aggravated by compressed net interest margins in the wake of the credit crunch for high-yield credit and cash card loans, he said.
At the end of the second quarter, the net interest margin of local banks dropped to a 1.94 percent average, down 0.3 percent from a year ago, according to the agency.
Mega Securities Corp (兆豐證券) said yesterday that it did not expect the poor margins to improve by the end of this year, given the tightening of unsecured consumer lending and price wars in the corporate lending business.
Financial stocks are expected to experience selling pressures and remain weak in the foreseeable future because of fallout from the consumer bad debts issue and lackluster profitability, Mega Securities said.
To break the deadlock, Fitch Ratings called on the government to relax its cross-strait restrictions to allow Taiwanese banks to utilize their idle funds and serve clients that have migrated to China, the nation's biggest outbound investment and export destination.
Local lenders have been calling for permission to expand across the strait from Taiwan's relatively small domestic market.
Fubon Financial Holding Co (
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