Taiwan's good GDP to boost banks' growth

Taiwan's stable economic outlook and the gradual rise in interest rates could give a modest boost to local banks' net interest margins in 2011.

However, not all players will reap the same benefits from the island's economic recovery. Banks that pursue overly aggressive growth strategies without suitable capital management may weaken their capitalization. That's accordingto an article titled "Capital Management Holds The Key To Taiwan Banks' Mid-Term Growth Strategies," that Taiwan Ratings Corp. published today.

"We expect Taiwan's reasonably good GDP growth forecasts for 2011 and 2012 to support high single-digit growth in banks' loan books over the same period," said credit analyst Eunice Fan. "However, local banks' increasing growth appetite highlights the importance of maintaining an adequate capital buffer to face new risk exposures."

Taiwan's banking sector is likely to maintain its adequate capitalization over the next few quarters under controlled growth scenarios. But banks' capitalization could deteriorate if their capital-raising or earnings retention lags asset growth or is insufficient to cushion new risks. These include the different risk characteristics of China's banking market, which provide additional or new risks for Taiwanese banks to manage.

"Banks' competitive positions are also likely to diverge further over the next few quarters, as stronger, more competitive banks gain advantages over weaker counterparts. Consequently, we don't expect every bank to benefit to the same degree from rising investor confidence and economic activity or the potential diversification benefits offered by a gradually deregulating
China market," said Ms. Fan.