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Moody’s says Taiwan banks’ operating environment challenging
By k on December 16, 2009
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.
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