Report Summary
The improving outlook is discussed at length later in this report.
Taiwan's economic growth accelerated slightly in Q107, as exports held up well in the face of a slowing US economy, while domestic consumption is showing signs of a moderate recovery. We expect economic conditions to improve during the second half of the year, but continue to project that growth in 2007 will slow from the revised 4.68% recorded in 2006.
Taiwan posted real GDP growth of 4.15% in Q107, accelerating slightly from a revised 4.04% y-o-y in Q406, but down from 4.95% in the same year-ago period. The statistics agency, at the time of releasing the Q1 data, announced that it has altered its method of calculating GDP growth, resulting in the upward revision of Taiwan's quarterly growth data since the start of 2002. Positively, the Q1 data indicate an improvement in economic conditions, following a slowdown in Q406 on the back of weaker external demand.
Focusing on the external sector, Taiwan's exports held up well in Q107, despite the US experiencing a particularly slow period of growth. Monthly export growth averaged 8.2% y-o-y in January-March, picking up from 7.7% in the preceding quarter, but far lower than the 18.1% recorded in the same yearago period. Exports of electronics products - Taiwan's primary export earner, accounting for around one third of total overseas shipments - have been softer since mid-2006, as Taiwan has faced inventory problems, but we expect demand to pick up again during the second half of this year. The government is forecasting exports to grow by 6.8% in 2007, up from a previous projection of 6.2%, but slowing sharply from last year's growth of 12.9%.
The Commercial Banking Sector Taiwan's potential to regain the economic power it held prior to the Asian Financial Crisis is doubtful. It is not at all obvious what the requisite catalyst for strong growth will prove to be. We predict that growth is likely to remain uninspiring, due to a combination of structural and economic factors. Taiwan's budget has run deficits for the past seven years, and despite some moves to control spending and boost the tax take, we expect that this pattern will remain the trend for years to come.
Taiwan's commercial banking industry is over-fragmented and consolidation is proceeding slowly. The biggest Taiwanese banks are comparatively small by the standards of other industrialised economies.
Also, the industry is being forced to resolve issues of bad consumer loans. The relief scheme offered to consumers may well avoid a credit meltdown but will ultimately reduce the payment flows to banks.
Interestingly, the loan/asset and the loan/deposit ratios have been falling. This indicates that banks and businesses, are probably not very optimistic about growth. For a country that is as rich and sophisticated as Taiwan, the loan/deposit ratio is low. Loans and deposits have been growing significantly slower than assets, and nominal GDP. The result of this is that the loan/asset, loan/deposit and loan/GDP ratios have all fallen over the last year or so even though, by most standards, they were already at moderate, high and very high levels, respectively. Excess deposits indicate that Taiwan is a country in which there is good scope for the banks to distribute insurance and other financial products to their clients.
The Taiwanese banking sector's low rate of growth mirrored similar results among more developed Asian banking systems, such as Singapore and Hong Kong, which both suffered small losses on some of the key indicators. The fact that Taiwan's banking system is far less developed indicates the potential for more growth in the market, particularly in light of the high savings rate and the well-capitalised banks. Deposits per capita of US$27,505 highlight this. However, with the current structural and economic issues facing the banking sector in Taiwan, growth is likely to remain moderate.
Press Reports A survey of recent press articles reveals two key themes. The first is a continued trend towards decreased regulation of the banking sector, and the second is debt. Significantly, press reports have indicated that Taiwan's chief financial regulator, the Financial Supervisory Commission (FSC), is planning to open Taiwan's markets further, enabling increased foreign investment in the banking sector.
Turning to the issue of debt, surveyed articles indicate that the FSC will continue its programme of monitoring banks with high overdue loans ratios in an attempt to promote better management of the issue among the banks. Banks have responded, in particular, by tightening their lending standards for homebuyers. Encouragingly, press reports indicate that the ratio of overdue loans dropped at the end of March. Family debts in Taiwan, however, remain the heaviest in all Asian nations, with 95% of usable income going to servicing debts, according to a survey by MasterCard.
Contents
Executive Summary
Key Issues
Changes To The Commercial Banking Forecast
Taiwan Commercial Banking SWOT
Latest Developments - Q307
International Context
Lending Trends And External Accounts
Total Assets, Loans And Deposits
Year-On-Year Growth Rates
Per-Capita Deposits
Macroeconomic Trends And Developments
Economics: BMI Core Scenario
Politics: BMI Core Scenario
Economic Activity
Industry Forecast Scenario
Comment On The Past
Comment On Forecasts
Comment On Trends
Banks' Bond Portfolios
Competitive Landscape
Market Protagonists
Methodology
“Taiwan Commercial Banking Report Q3 2007” is available from Report Buyer. For more information go to: http://www.reportbuyer.com/
Piribo Product ID: BMI00477
