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Taiwan at a glance
Banking sector
Stock market
Bond market
Development issues
Territory
- 31,688 km2
Population
- 22.95 million
Capital
- Taipei
Government System
- Democracy
Administrative Divisions
- 2 municipalities / 16 counties / 5 provincial cities
Currency
- TWD, semi-flexible exchange rate, 1 EUR = 47.865TWD (2008.05.23)
Languages
- Mandarin, Taiwanese
Ethnicities
- Han (92%) and Taiwanese aborigines (2%)
Religion
Buddhism, Islam, Taoism, Christianity
3
Source : China Statistical Yearbook, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
TAIWAN AT A GLANCE
- ECONOMIC DEVELOPMENT
Taiwan GDP 2000 - 2008 Taiwan is the 21th largest economy in
USD Million % the world (2006*)
GDP (million US) GDP Growth Rate
450,000 7.00
413,164 Considering the GDP per capita,
6.15 6.00
400,000 5.77
365,503
383,303
5.70 Taiwan is the 36th in the world in 2006
355,958
350,000
321,230 4.64 331,007 4.89 5.00
( at $USD 16,274 )
305,624 4.16 4.32
291,694 297,668 4.00
300,000 3.50 Taiwan’s 2007 GDP amounted to
3.00
250,000 $USD 383,303 million, along with a
2.00
200,000 consistent growth since 2002. The
1.00
150,000
CAGR of Nominal GDP in 2000-2007 is
0.00
??? %
100,000
-1.00
50,000
Taiwan’s growth has consistently
-2.17 -2.00
(except 2001) been higher than CPI
0 -3.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 E inflation, indicating a positive real
growth
GDP Growth rate and CPI¹ 2000-2008
7.00 Economic Outlook for 2008:
6.00 6.15
5.77 5.70 The latest world economic projection
5.00
4.64 4.89
4.00 4.16 4.32 shows that the growth of global economy
3.86
3.50
3.00 may be moderately slow in 2008.
2.00 2.31
1.61 1.80 Taiwan’s export is anticipated to mildly
1.00 1.25
0.60 increase. With the improving domestic
0.00 -0.01 -0.20 -0.28
-1.00 2000 2001 2002 2003 2004 2005 2006 2007 2008E* sector contribution, real GDP is predicted
-2.00
-2.17 to grow by 4.32% in 2008.
-3.00
4
Source :DGBAS, NPV analysis *: until 2008/ April
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
INDEX
Taiwan at a glance
Banking sector
Stock market
Bond market
Development issues
In 1949, the Central Bank relocated with the government from Mainland China to
Phase 1: 1949 to 1980 Taipei . A highly successful land reform program launched Commonly, bonds
Shift from Agriculture to issued by the government as compensation for the agricultural lands confiscated
Manufacturing and redistributed were utilized by the former landlords as collateral to secure loans
with which they started up manufacturing and other businesses.
6
Source :Taiwan Yearbook 2007, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
FINANCIAL MARKET OVERVIEW
- RECENT DEVELOPMENT
2 phase financial reforms have been conducted from 2000 :
Background
Taiwan opened its market for new banks in the early 1990s. As a result, 16 new banks were established and left
behind an “over-banking” problem. More specifically, while market competition stimulated the development of
the financial markets, the overly competitive banking market deteriorated banks’ asset quality, narrowed their
interest spread and reduced profit margin from them.
For example, the market share of the top 5 banks in Taiwan only accounts for 38%, while the figures in Korea
and Hong Kong are 87% and 76% respectively. In other words, Chinese Taipei lacked big and good banks.
Over-regulation was another problem in our financial market. Previously, banks were considered as policy tools
aiming to support our manufacturing industry. This situation inevitably restricted the effectiveness of market
mechanism and limited the competitiveness of our financial markets.
The goal of the first reform aimed at resolving the non-performing loan problems.
For the purpose, the previous financial regulator, the Ministry of Finance (MoF), lowered business tax of
financial institutions from 5% to 2% and the Central Bank lowered deposit reserves to encourage bad debt
write-offs.
The Ministry of Finance established the Financial Restructuring Fund (or RTC fund) and created Asset
Management Companies to deal with distressed financial institutions and resolve their deteriorated assets.
The results of the first reform are significant. The average NPL ratio of domestic banks reduced from 11.27% in
2001 to 2.39% in June 2006.
In addition, 14 financial holding companies have been established since 2001. However, since there are only few
M&A deals in recent years, the number of our banks is still large.
To promote integrated financial supervision, we have also enacted a law aiming at the integration of several
supervisory agencies. The Financial Supervisory Commission was established on July 1, 2004 to consolidate the
supervision of banking, securities and insurance sectors, and to act as a single regulator under the Executive Yuan.
The key objective of phaseⅡfinancial reform is consolidation and promoting Taiwan as a regional fund-raising and
asset management center.
The four goals of market consolidation are: (1) three banks with market share over 10% by the end of 2005; (2) halving
the number of state-owned banks by the end of 2005; (3) reducing FHCs (4)financial institutions with foreign investment.
To speed up financial M&As, the FSC has been trying to create an environment beneficial for consolidation, not only for
domestic financial institutions but also for foreign investors.
It revises outdated regulations to be in line with international norms, implements differentiated supervisory measures to
encourage well-performing financial institutions, and offers incentives for consolidation. .
8
10.04 2007
9.98 2006
10.43 2005
10.52 2004
10.56 2003
NTD (billion)
25000 180.00%
160.00%
20000 140.00%
120.00%
15000
100.00%
80.00%
10000
60.00%
5000 40.00%
20.00%
0 0.00%
2002 2003 2004 2005 2006 2007
Taiwan at a glance
Banking sector
Stock market
Bond market
Development issues
11
Executive Yuan
Banking Bureau
Domestic Banks
Securities and Futures Bureau
12
Source :FSC, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
BANKING SECTOR
- STRUCTURE 2/5
Central Bank - Central Bank of the Republic of China (Taiwan)
In December 1949, the Bank relocated with the government from Mainland China to Taipei
In November, 1979, the newly revised Central Bank of China Act was promulgated. While the Bank has
since been under the Executive Yuan (Cabinet), its independent role in making monetary policy has
not been changed.
the Bank's operational objectives include promoting financial stability, ensuring sound banking operations,
maintaining the stable internal and external value of the currency and, within the scope of the above three
objectives, fostering economic development.
13
Source :CBC, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
BANKING SECTOR
- STRUCTURE 3/5
Financial Supervisory Commission (FSC) was inaugurated and commenced operation since 1 July 2004 .
FSC functions act as a single and independent regulator that directly reports to the Executive Yuan.
Main goal : consolidate the supervision of banking, securities and insurance industries under one roof, as well as to
integrate the tasks of examining these industries.
The FSC includes 4 bureaus and 5 supporting departments.
4 bureaus
- The Bureau of Monetary Affairs
- The Securities and Futures Bureau } responsible for the supervision of financial institutions.
- The Insurance Bureau
- The Examination Bureau is in charge of the examination of all financial institutions.
It is worth mentioning that the newly organized Examination Bureau integrates examination staff from the CBC*,
BOMA** and the CDIC***, which provides better administrative and human resources to conduct financial examination
under one agency.
5 supporting departments
- International Affairs Departments
- Legal Affairs Department
- General Planning Department
- IT Department
- Secretary Office
billion TWD
45 000
40 000
35 000
30 000
25 000
20 000
15 000
10 000
5 000
0
2003 2004 2005 2006 2007
• As of the year-end 2007, the total assets of the banking sector amounted to TWD 38235 billion, an
increase of RMB 501 billion from 2006.
• During the same period, the total liabilities reached TWD 36069 billion, an increase of TWD 433 billion.
15
Source :CBRC 2007, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
BANKING SECTOR
- FINANCIAL INSTITUTIONS ASSETS BREAKDOWN
Local branch of
foreign banks
2006 Credit Cooperatives
Bills Finance
Companies
2005
Trust and Investment
companies
Credit Departments of
Farmers' Associations
2004
Credit Departments of
Fishermen's Associations
The Postal Savings System
2003
• Domestic banks occupy the majority of total asset and account for 72.8% of total.
• Credit Cooperatives, Bills Finance Companies and Trust and Investment company are decreasing
gradually.
billion NTD
30 000 73.0%
25 000 72.0%
71.0%
20 000
70.0%
15 000
69.0%
10 000
68.0%
5 000 67.0%
0 66.0%
2003 2004 2005 2006 2007
• As of the year-end 2007, total deposits and total loans outstanding amount to 25245 and 18019 billion,
respectively
17
Source :FSC, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
BANKING SECTOR
- NPLs1 OF DOMESTIC BANKS
Billion TWD
900 6.00%
800
5.00%
700
600 4.00%
500
3.00%
400
300 2.00%
200
1.00%
100
0 0.00%
2003 2004 2005 2006 2007
• The quality of assets improved dramatically due the Financial Reform from 2000.
• By the end of 2007, the NPLs of major commercial banks totals TWD 337.4 billion, a decline of TWD 38
billion from end-2006. The NPL ratio was 1.79 percent, with a decrease of 0.8%
18
Source :FSC , NPV analysis Note 1: Non-Performing Loans
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
BANKING SECTOR
- ROA and ROE of Domestic Bank
12
10
0
2003 2004 2005 2006 2007
-2
ROA ROE
• ROA and ROE decrease from 2005 due to Double-card debt crisis (credit card / cash card ) and over
competition.
19
Source :FSC , NPV analysis Note 1: Non-Performing Loans
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
MACROECONOMICS ANLYSIS OF THE FINANCIAL SECTOR IN
CHINA
Taiwan at a glance
Banking sector
Stock market
Bond market
Development issues
20
Financial market
Stock Stock
Warrant Bond
Bond Derivative
Beneficiary Certificates
ETF
Beneficiary Securities
21
Source :TSEC, GTSM , NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
STOCK MARKET
- REGULATOR ( Exchange Market )
Taiwan Stock Exchange / TSEC
The CSRC was founded in 1992. It is an institution of the State Council of the People's Republic of China
(PRC). It is the main security (finance) regulator that responsible for conducting supervision and
regulation of the securities markets in accordance with the law
In August 1997, The State Council decided to put the securities markets in Shanghai and Shenzhen
under the supervision of the CSRC
In November 1998, Organizations engaged in securities formerly supervised by the People's Bank of China
were put under the centralized supervision of the CSRC
22
Source :CSRC 2007, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
STOCK MARKET
- REGULATOR ( OTC Market )
The government reopened the over-the-counter trading of bonds in October 1982.
The Taipei Securities Dealer's Association (TSDA) started handling over-the-counter trading of stocks in
February 1988.
In 1994, this non-profit organization with the mission to develop the over-the-counter market was named
23
Source :GTSM, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
STOCK MARKET
- OVERVIEW
billion TWD
40000
35000
30000
25000
20000
15000
10000
5000
0
2003 2004 2005 2006 2007
Capital Issued Market Capitalization Trading Value
• From 2003-2007, Taiwan stock exchange market has grown consistently and stably.
• In 2007, the market capitalization reaches 21,527 billion TWD and growth rate is 11.1% from 2006.
• In 2007, the Trading Value reaches 33,527 billion TWD and growth rate is 38.6% from 2006
• In 2007, the Capital Issued reaches 5601 billion TWD and growth rate is 1.4% from 2006
24
Source :FSC Financial Outlook Monthly, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
STOCK MARKET
- COMPARISON BETWEEN EXCHANGE AND OTC MARKET
Number of Listing Market Capitalization
TWD (Billion)
800
25000
700
600
20000
500
400 15000
300
10000
200
100 5000
0
2003 2004 2005 2006 2007 0
GTSM TSEC 2003 2004 2005 2006 2007
GTSM TSEC
TWD (Billion)
Trading Value Trading Volume
TWD (Billion)
40000
120000
35000
30000 100000
25000 80000
20000
60000
15000
40000
10000
5000 20000
0 0
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
• TSEC and GTSM occupy 91.89% and 8.11 % of the Market Capitalization respectively in 2007.
• TSEC and GTSM occupy 85.56% and 14.44 % of the Market Capitalization respectively in 2007
• TSEC and GTSM occupy 85.80% and 14.20 % of the Market Capitalization respectively in 2007.
25
Volume-Weighted Index
26
Source :TSEC , GTSM NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
STOCK MARKET
- COMPARISON BETWEEN EXCHANGE AND OTC MARKET
P/E Ratio
Turnover Ratio
45.00
40.00
500.00
35.00
30.00 400.00
25.00 300.00
20.00 200.00
15.00 100.00
10.00
0.00
5.00 2003 2004 2005 2006 2007
0.00
2003 2004 2005 2006 2007 STOCK ON TSEC STOCK ON GTSM EMERGING STOCK ON GTSM
2.00 30.00
25.00
1.50
20.00
1.00 15.00
0.50 10.00
5.00
0.00
2003 2004 2005 2006 2007 0.00
2003 2004 2005 2006 2007
STOCK ON TSEC STOCK ON GTSM EMERGING STOCK ON GTSM
STOCK ON TSEC STOCK ON GTSM EMERGING STOCK ON GTSM
• Emerging Stock on GTSM owns the highest P/E Ratio, but decrease dramatically from 2006 to 2007.
• Stock on GTSM owns much higher turnover rate than the others.
• Stock on TSEC owns the highest Average Earning Per Share and Average Market Value Per Share.
27
Taiwan at a glance
Banking sector
Stock market
Bond market
Development issues
28
The turnover in the bond market in 2007 reached NT$193,644.6 bi l l ion (convertible bonds
and
corporate bonds with warrant excluded)
NT$93,178.7 bi l l ion involved out right trades, accounting for 48.12% of total turnover and
representing a decrease of 45.04% as compared to 2006
Government bonds still represented a lion’s share in outright trade, accounting for as much as
98.74% of all outright trades, followed by corporate bonds with 0.41%, financial debentures with
0.15%, beneficiary securities with 0.17%, strip bonds with 0.07%, and foreign bonds with 0.46%.
The turnover of RP/RS trades totaled NT$99,857.9 billion in 2007, representing a decrease of
5.49% from NT$105,663.9 billion in 2006.
Since 2003, practically all outright trades of government bonds went through the GTSM
electronic bond trading system (EBTS). In 2007, the amount of outright trade that went through
EBTS reached NT$88,596.5 billion, accounting for 95.08% of outright trades in the market,
29
Source :Chinabond 2007, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
BOND MARKET
- OVERVIEW
Unit:NT$ Billion GTSM Market
250,000
200,000
150,000
100,000
50,000
-
2003 2004 2005 2006 2007
Trading Value Outstanding
• Trading Value started to decrease from 2005, with -16.03% and -24.47% growth rate in 2006 and 2007
respectively.
• Outstanding has kept growing slightly from 2003 to 2007.
• At the end of 2007:
• bond trading volume reaches 133,382 billion
• bond outstanding is 5,612 billion TWD
30
Source :FSC, Securities and Futures Bureau , 2007, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
BOND MARKET
- BOND ISSUE BY Product (GTSM)
2007 Government
Bond
Financial Debenture
2006
Beneficiary Securities
2005
Corporate Bond
with Warranty
Convertible&Exchangable
Corporate Bond
2004
Foreign Bond
International Bond
2003
Amount outstanding
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
• Government Bonds and Corporate Bonds dominate the market, despite their volatility from year to year.
They occupy around 80% of the volume
• Financial debenture and Beneficiary certificate are the two main sector that keep growing for these 5 year.
Especially for Beneficiary certificate
31
Source :Chinabond 2007, NPV analysis
2008 05 21 – SRI in APAC Emerging Markets MATERIALE NPV – RIPRODUZIONE VIETATA
MACROECONOMICS ANLYSIS OF THE FINANCIAL SECTOR IN
CHINA
Taiwan at a glance
Banking sector
Stock market
Bond market
Development issues
32