Download - Macro Economic Analysis Taiwan 530
MATERIALE NPV – RIPRODUZIONE VIETATA
Socially Responsible Investments in APAC emerging markets
State of the art updated on may 21, 2008
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MACROECONOMICS ANLYSIS OF THE FINANCIAL SECTOR IN TAIWAN
Taiwan at a glance
Financial market overview
Banking sector
Stock market
Bond market
Development issues
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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
Source : China Statistical Yearbook, NPV analysis
TAIWAN AT A GLANCE
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2008 05 21 – SRI in APAC Emerging Markets
5.77
-2.17
4.64
3.50
6.15
4.164.89
5.70
4.32
1.25
-0.01 -0.20 -0.28
1.612.31
0.60
1.80
3.86
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
2000 2001 2002 2003 2004 2005 2006 2007 2008E
Taiwan GDP 2000 - 2008
- ECONOMIC DEVELOPMENT
321,230
291,694 297,668 305,624331,007
355,958 365,503383,303
413,164
5.77
-2.17
4.64
3.50
6.15
4.16
4.89
5.70
4.32
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 E
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00GDP (million US) GDP Growth Rate
Taiwan is the 21th largest economy in
the world (2006*)
Considering the GDP per capita,
Taiwan is the 36th in the world in 2006
( at $USD 16,274 )
Taiwan’s 2007 GDP amounted to
$USD 383,303 million, along with a
consistent growth since 2002. The
CAGR of Nominal GDP in 2000-2007 is
??? %
Taiwan’s growth has consistently
(except 2001) been higher than CPI
inflation, indicating a positive real
growth
Economic Outlook for 2008:
The latest world economic projection
shows that the growth of global economy
may be moderately slow in 2008.
Taiwan’s export is anticipated to mildly
increase. With the improving domestic
sector contribution, real GDP is predicted
to grow by 4.32% in 2008.
Source :DGBAS, NPV analysis *: until 2008/ April
GDP Growth rate and CPI¹ 2000-2008
TAIWAN AT A GLANCE
%USD Million
*
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INDEX
Taiwan at a glance
Financial market overview
Banking sector
Stock market
Bond market
Development issues
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Over the second half of the 20th century, Taiwan has transformed itself from a predominantly agrarian economy
into a vigorous industrialized economy, a process that may be summarized in three main phases: Taiwan’s economy transform has gone through three phases of development:
Phase 1: 1949 to 1980Shift from Agriculture to
Manufacturing
In 1949, the Central Bank relocated with the government from Mainland China to
Taipei . A highly successful land reform program launched Commonly, bonds
issued by the government as compensation for the agricultural lands confiscated
and redistributed were utilized by the former landlords as collateral to secure loans
with which they started up manufacturing and other businesses.
Phase 2: 1981 to 1999Ongoing Industrial Development
Beginning in the 1980s, the government implemented a series of measures to
liberalize and internationalize the economy and privatize state-run enterprises.
Labor-intensive industries, once the mainstay of Taiwan's economy, gave way to
technology- and capital-intensive industries.
Phase 3: from 2000 onwardsReform for Sustainable
Development
Globalization, trade liberalization, and the rise of neighboring China as an
economic power pose new challenges for Taiwan's economic development in the
new century. To meet them, the government has taken measures to upgrade
Taiwan's industries, implemented financial reforms to foster a more attractive
investment environment.
FINANCIAL MARKET OVERVIEW- HISTORY
Source :Taiwan Yearbook 2007, NPV analysis
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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.
FINANCIAL MARKET OVERVIEW- RECENT DEVELOPMENT
Phase of Financial ReformⅠ (started in 2000)
Source :Financial Supervisory Commission , NPV analysis
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The MoF enacted the Financial Institution Merger Act and the Financial Holding Company Act to create a better M&A legal environment and lessen the adverse effect of over-banking.
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.
FINANCIAL MARKET OVERVIEW- RECENT DEVELOPMENT
Phase of Financial Reform (started in 2004 till now)Ⅱ
The key objective of phase financial reform is Ⅱ 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. .
Source :Financial Supervisory Commission , NPV analysis
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10.04
9.98
10.43
10.52
10.56
% Of Total Nominal GDP
Source :CSRC, CBRC, NPV analysis
• Financial Service Industry accounts for around 10% of total GDP.
• Financing, Insurance, and Securities and futures represents 65.7%, 24.6% and 9.7% of total
financial market.
• Financing has been decreasing gradually from 2003-2007
FINANCIAL MARKET OVERVIEW- BREAKDOWN OF FINANCIAL SERVICE INDUSTRY
0% 20% 40% 60% 80% 100%
2003
2004
2005
2006
2007
Financing Insurance Securities and Futures
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GDP & Capitalization (2002-2007)
NTD (billion)
• Market Capitalization start to surpass GDP from 2003
• Market Capitalization is growing faster than GDP
• Stock Market Capitalization to GDP Ratio keeps growing from 2002 (89.22%) to 2007 (171%)
Source :Taiwan Stock Exchange , NPV analysis
0
5000
10000
15000
20000
25000
2002 2003 2004 2005 2006 2007
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
180.00%
GDP Market Capitalization Stock Market Capitalization To GDP Ratio
FINANCIAL MARKET OVERVIEW
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Taiwan at a glance
Financial market overview
Banking sector
Stock market
Bond market
Development issues
MACROECONOMICS ANLYSIS OF THE FINANCIAL SECTOR IN TAIWAN
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Source :FSC, NPV analysis
BANKING SECTOR
- STRUCTURE 1/5
Executive Yuan
Central Bank of R.O.C (Taiwan)
Financial Supervisory Commission( Regulator )
Domestic Banks
Local Branches of Foreign Banks
Credit Cooperatives
Taiwan Post Co.
Banking Bureau
Securities and Futures Bureau
Insurance Bureau
Financial Examination Bureau
Supportive Departments : - International Affairs Departments - Legal Affairs Department - General Planning Department - IT Department - Secretary Office
Credit Departments of Farmers’ & Fishermen’s Associations
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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.
The main functions of CBC: Monetary Management Foreign Exchange Management Clearing and Settlement Service Currency Issuance Treasury Agency Functions Bank Examination Statistics and Research Participation in International Organizations ;
Source :CBC, NPV analysis
BANKING SECTOR- STRUCTURE 2/5
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Regulator: Taiwan Financial Supervisory Commission
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
- 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
} responsible for the supervision of financial institutions.
BANKING SECTOR- STRUCTURE 3/5
* CBC : Central Bank of Republic of China (Taiwan)
** BOMA : Bureau of Monetary Affairs
*** CDIC : Central Deposit Insurance Corporation
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billion TWD
• 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.
Source :CBRC 2007, NPV analysis
BANKING SECTOR- BANKING ASSETS AND LIABILITIES
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
2003 2004 2005 2006 2007
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BANKING SECTOR- FINANCIAL INSTITUTIONS ASSETS BREAKDOWN
• Domestic banks occupy the majority of total asset and account for 72.8% of total.
• Local branch of foreign banks keep increasing
• Credit Cooperatives, Bills Finance Companies and Trust and Investment company are decreasing gradually.
• Credit Departments of Farmers' and Fishermen’s Associations have no significant change Source :FSC , NPV analysis
0% 20% 40% 60% 80% 100%
2003
2004
2005
2006
2007 Domestic Bank
Local branch of foreign banks
Credit Cooperatives
Bills Finance Companies
Trust and Investment companies
Credit Departments of Farmers' Associations
Credit Departments of Fishermen's Associations
The Postal Savings System
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BANKING SECTOR- DEPOSITS AND LOANS
billion NTD
• As of the year-end 2007, total deposits and total loans outstanding amount to 25245 and 18019 billion, respectively
• Loan to Deposit Ratio keeps at about 70% in the latest 4 years
Source :FSC, NPV analysis
0
5 000
10 000
15 000
20 000
25 000
30 000
2003 2004 2005 2006 2007
66.0%
67.0%
68.0%
69.0%
70.0%
71.0%
72.0%
73.0%
Deposit Loan Loan to Deposit Ratio
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Billion TWD
• 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%
- NPLs1 OF DOMESTIC BANKS
BANKING SECTOR
Source :FSC , NPV analysis Note 1: Non-Performing Loans
0
100
200
300
400
500
600
700
800
900
2003 2004 2005 2006 2007
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Total NPL NPL Ratio
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-2
0
2
4
6
8
10
12
2003 2004 2005 2006 2007
ROA ROE
- ROA and ROE of Domestic Bank
BANKING SECTOR
• ROE reduced dramatically from 10.3% (2005) to -0.43% (2006)
• ROA and ROE decrease from 2005 due to Double-card debt crisis (credit card / cash card ) and over
competition.
Source :FSC , NPV analysis Note 1: Non-Performing Loans
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2008 05 21 – SRI in APAC Emerging Markets
Taiwan at a glance
Financial market overview
Banking sector
Stock market
Bond market
Development issues
MACROECONOMICS ANLYSIS OF THE FINANCIAL SECTOR IN CHINA
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Source :TSEC, GTSM , NPV analysis
Stock Market
- STRUCTURE 1/5
Financial market
Taiwan Stock Exchange / TSEC
(exchange market)
GreTai Security Market / GTSM
(OTC market)
Stock
Emerging Stock
Bond
Derivative
Stock
TDR (Taiwan Depository Receipts)
Warrant
Bond
Beneficiary Certificates
ETF
Beneficiary Securities
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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
Product and Service
Stock / TDR (Taiwan Depository Receipts) / Warrant / Bond /Beneficiary Certificates / ETF/ Beneficiary
Security Its responsibilities include:
Formulating policies, laws and regulations concerning markets in securities and futures contracts; Overseeing issuing, trading, custody and settlement of equity shares, bonds, investment funds; Supervising listing, trading and settlement of futures contracts; Supervising futures exchanges; securities and futures firms; Granting the qualification of law firms, accounting firms, asset appraisal firms, and professionals in
these firms
STOCK MARKET- REGULATOR ( Exchange Market )
Source :CSRC 2007, NPV analysis
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GreTai Security Market / GTSM
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
Gre Tai Securities Market (the GTSM) Since its inception in 1994, GreTai Securities Market (GTSM) has been endeavoring to play the role of a
family and aspires to be the "protagonist of economic vitality and the cradle of successful businesses" to
help businesses grow and develop, drive the upgrade of industries and enhance competitiveness in the
international markets. Product and Service
Stock / Emerging Stock / Bond / Financial Derivative
STOCK MARKET- REGULATOR ( OTC Market )
Source :GTSM, NPV analysis
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• 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
billion TWD
- OVERVIEW
STOCK MARKET
Source :FSC Financial Outlook Monthly, NPV analysis
0
5000
10000
15000
20000
25000
30000
35000
40000
2003 2004 2005 2006 2007
Capital Issued Market Capitalization Trading Value
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Number of Listing
- COMPARISON BETWEEN EXCHANGE AND OTC MARKET
STOCK MARKET
Market Capitalization
Trading Value Trading Volume
• 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.
0
100
200
300
400
500
600
700
800
2003 2004 2005 2006 2007
GTSM TSEC
0
5000
10000
15000
20000
25000
2003 2004 2005 2006 2007
GTSM TSEC
0
5000
10000
15000
20000
25000
30000
35000
40000
2003 2004 2005 2006 2007
GTSM TSEC
TWD (Billion)
0
20000
40000
60000
80000
100000
120000
2003 2004 2005 2006 2007
GTSM TSEC
TWD (Billion)TWD (Billion)
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- MARKET PERFORMANCE 2007
STOCK MARKET
Source :TSEC , GTSM NPV analysis
• In the first 3 quarters of 2007, both TAIEX
and GTSM Index keeps the growth
momentum in the previous year
• TAIEX opened at 7920 and closed at
8509.56, with a rate of yearly increase
7.39% in 2007.
• GTSM Index opened at 164.71 and
closed at 154.47, with a rate of yearly
decrease 6.22% in 2007.
• In the 4th quarter, the indices fall down
due to the impact of US sub prime crisis
as well as the concern that the market
has gone irrational and the bubble is
about to break
GTSM INDEX and Trading Volume
Turnover ( T
WD
$ 100 million)
Volum
e-Weighted Index
TAIEX and Trading Volume
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0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
2003 2004 2005 2006 2007
STOCK ON TSEC STOCK ON GTSM EMERGING STOCK ON GTSM
P/E Ratio
- COMPARISON BETWEEN EXCHANGE AND OTC MARKET
STOCK MARKET
0.00
100.00
200.00
300.00
400.00
500.00
2003 2004 2005 2006 2007
STOCK ON TSEC STOCK ON GTSM EMERGING STOCK ON GTSM
Turnover Ratio
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2003 2004 2005 2006 2007
STOCK ON TSEC STOCK ON GTSM EMERGING STOCK ON GTSM
Average Earning Per Share Average Market Value Per Share
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
2003 2004 2005 2006 2007
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.
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2008 05 21 – SRI in APAC Emerging Markets
Taiwan at a glance
Financial market overview
Banking sector
Stock market
Bond market
Development issues
MACROECONOMICS ANLYSIS OF THE FINANCIAL SECTOR IN CHINA
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BOND MARKET- Overview
Source :Chinabond 2007, NPV analysis
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$88,596.5 billion, accounting for 95.08% of outright trades in the market,
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• Trading Value started to decrease from 2005, with -16.03% and -24.47% growth rate in 2006 and 2007
respectively.
• Outstanding has kept growing slightly from 2003 to 2007.
• At the end of 2007:
• bond trading volume reaches 133,382 billion
• bond outstanding is 5,612 billion TWD
BOND MARKET- OVERVIEW
Source :FSC, Securities and Futures Bureau , 2007, NPV analysis
Unit:NT$ Billion
-
50,000
100,000
150,000
200,000
250,000
2003 2004 2005 2006 2007Trading Value Outstanding
GTSM Market
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BOND MARKET- BOND ISSUE BY Product (GTSM)
Source :Chinabond 2007, NPV analysis
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2003
2004
2005
2006
2007 Government Bond
Financial Debenture
Beneficiary Securities
Straight Corporate Bond
Corporate Bond with Warranty
Convertible&ExchangableCorporate Bond
Foreign Bond
International Bond
Amount outstanding
• 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
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2008 05 21 – SRI in APAC Emerging Markets
Taiwan at a glance
Financial market overview
Banking sector
Stock market
Bond market
Development issues
MACROECONOMICS ANLYSIS OF THE FINANCIAL SECTOR IN CHINA
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DEVELOPMENT ISSUES- FUTURE PROSPECT
Updating of financial regulations
-Drafted bills under review in the Legislative Yuan
Efforts to create a secure and efficient financial environment - Stronger credit risk control - Implementation of the Basel Capital II Accord - Outlook for Taiwanese banks (competitiveness) - Securities firms to act as depository and manage client funds - Integration of securities and futures self-regulatory organizations - Continued development of the Taiwan ETF market - Strengthening the solvency of insurance companies - Amending the insurance product review system - Continued review of the Taiwan Residential Earthquake Insurance system
- Financial institutions urged to implement a loan pricing policy
- Enhancing the preventive function of financial examinations
Internationalization of the financial industry - Pushing for internationalization of Taiwan's capital market - Promoting corporate governance - International cooperation Financial literacy initiatives
Source :FSC Annual Report 2007, NPV analysis