Moody’s says Taiwan banks’ operating environment challenging

Singapore, December 16, 2009 -- Moody's Investors Service says in a new 
report that the Taiwanese banking system faces a challenging operating 
and regulatory environment, but there are also signs of improvement.

The report, "Banking System Profile for Taiwan," further notes that 
systemic support is expected to be extended to Taiwanese banks, should 
they need it, as a stable banking system is essential to the Taiwan 
economy.

"The Taiwan banking system has since 2000 gradually consolidated from 53 
domestic banks to 37, but the market landscape has changed little and the 
very keen level of competition has not abated," says Christine Kuo, a 
Moody's VP/Senior Analyst and author of the report.

"While Taiwan's economic growth has been robust in most years, it is 
trending lower and vulnerable to external developments. Moreover, the 
efficiency of its legal system is only assessed as fair and its control
of corruption has room for improvement. These conditions have negatively
affected the business growth and efficiency of bank operations," adds 
Kuo.

Nonetheless, the regulatory and supervisory environment for Taiwanese
banks is improving. Most of its regulatory standards are in line with 
international practices, while its enforcement is adequate.

Areas that could be further enhanced include a more stringent 
classification of impaired credit, full adoption of international 
accounting standards, and improved corporate governance.

Moody's also notes that the chairpersons and commissioners of the
Financial Supervisory Commission have changed several times since its
establishment in 2004. These frequent changes suggest the organization
is subject to certain degree of political influence.

A reduction of political interference would enable the regulator to 
formulate and implement a more consistent and cohesive financial sector 
policy over time.

Moody's assesses Taiwan as a high-support country, based on the 
importance of the banking system to the economy and the absence of any 
history of bank deposit defaults. Additionally, in Moody's view, Taiwan's 
Aa3-rated government is capable of supporting the banking system, if 
needed.

Moody's Banking System Profile for Taiwan is a first for that economy and 
forms part of a new series of reports on banking systems throughout the 
world. These profiles are designed to complement the rating agency's 
Banking System Outlook reports by serving as descriptive reference guides 
to key structural factors reflected in Moody's bank credit ratings.