(Last updated: 17 Nov 2011)
Trends and opportunities
Taiwan is situated at the centre of the Asia-Pacific region, and the rapid economic growth of China in recent years has highlighted the advantages of this position, which has impacted across all sectors including financial services.
In January 2002, Taiwan became the 144th member of the World Trade Organization (WTO). This has allowed Taiwan to compete internationally through barrier-free access to the economies of other WTO members and the lowering of domestic consumer prices. In the World Economic Forum's Global Competitiveness Report 2009-2010, Taiwan ranks 12th out of 117 economies.
The restrictions that constrained relations across the Taiwan Straits prevented the island from leveraging its geographic advantage. Now, the gradual loosening of the flow of goods, capital, and personnel between Taiwan and China will enable Taiwan to make better use of this advantage to attract international investment and the participation of internationalised institutions.
Deposit-taking institutions held a total of over US$1.49 trillion in assets at the end of June 2011, climbing by over five per cent from the previous year’s end. Total loans and deposits amounted to around US$6.97 billion and US$1.04 trillion, respectively. Compared to the end of the previous year, total loans rose slightly by 6.7 per cent, while total deposits increased by 5.6 per cent. Domestic banks dominated nearly 74 per cent of assets and deposits, and had a share of more than 90 per cent in loans in all deposit taking institutions.
Total outstanding loans extended by the current 37 domestic banks increased US$8.54 billion as compared to the number of previous month and amounted to US$727.80 billion at the end of August 2011. Meanwhile, the NPLs of these banks totalled at US$3.40 billion which increased by US$0.06 billion from US$3.34 billion as of the end of previous month. Among the 37 domestic banks in Taiwan, 36 banks operated with NPL ratios under two per cent.
There are a total of 15 financial holdings companies and 37 domestic banks in Taiwan totalling 3,555 branches. Twenty-eight foreign banks have been granted a licence, which accounts for 92 branches. The Australian and New Zealand Bank has completed its takeover of RBS and operates 22 branches across Taiwan. (Source: Banking Bureau, Financial Supervisory Commission, Executive Yuan, R.O.C.)
The Taiwan Stock Exchange (TWSE) is the primary equities market in Taiwan. In addition to the TWSE, there are two other regulated markets:
- The Gre-Tai Securities Market (GTSM) – the market for bonds and small-and-medium sized enterprises
- The Taiwan Futures Exchange (TAIFEX) – the principal derivatives market in Taiwan
Every trade is cleared and settled by the relevant market. The Taiwan Depository and Clearing Corporation (TDCC) provide the custodian and book-entry service.
At the end of 2010, the total market capitalisation of the 758 companies listed the TWSE amounted to US$807 billion. The ratio of Taiwan market capitalisation to GDP was 167 per cent in 2009. In 2010, the total trading value was US$956 billion. The market P/E ratio of the Taiwan market was 9.80, fourth among primary Asia exchanges, making it an attractive marketplace for investors.
As of the end of September 2010, foreign and mainland Chinese investors had bought US$115.6 billion and sold US$114 billion worth of shares on the Taiwan Stock Exchange for the year to date, making for a cumulative net inward investment of US$1.57 billion.
Meanwhile for the GreTai Securities Market, foreign and mainland Chinese investors had purchased roughly US$4.37 billion and sold roughly US$4.64 billion making for a net inward investment of US$200 million on the GreTai.
The figure for cumulative (since the end of 1992) net inward remittances by offshore foreign institutional investors, mainland China investors, offshore overseas Chinese, and offshore foreign nationals in connection with investments made on the Taiwan securities market as of the end of September 2010 stood at approximately US$157.81 billion, up some US$2.37 billion from the US$155.44 billion figure as of the end of August 2010. (Source: Taiwan Stock Exchange, 2010).
(Source: Taiwan Stock Exchange, 2010)
The primary role in Taiwan for the funds management industry is held by Securities Investment Trust Enterprises (SITE) and Securities Investment Consulting Enterprises (SICE). The industry was hit by the global financial crisis substantially contracted due to the declining investment assets and redemption pressures from the investors.
Up to September 2011, the number of domestic SITEs remained unchanged at 39. The number of onshore public offering funds was standing at 589, with a fund size of US$93.4 billion.
With the financial liberalisation and development trends in international investment, up to 2011, the accumulated amount of offshore funds reached 1,016, and total capital held by domestic investors increased to US$88 billion. This is indicative of domestic investors actively extend their investments to overseas markets for diversified investment alternatives. Additionally, this also gave an opportunity for domestic securities investment institutions to learn from foreign asset management institutions. This constructive interaction not only allowed domestic asset management institutions to compete with the world’s best asset management companies, and also gave an opportunity to foreign institutions to develop Taiwan market. Ultimately, the investors are the ones to benefit with more choices in the market.
(Source: The Securities & Investment Trust and Consulting Association of the R.O.C, 2010)
The wealth management sector has also become attractive in recent years, due to a growing elderly population and a decreasing number of children in families, households with more disposable income now demand more new financial products to earn reasonable returns. This has given banks in Taiwan a chance to build up their wealth management business, and spurred them to design new financial products to satisfy customers’ needs.