Industry Forecast - Banks To Continue To Look Towards Southeast Asia - NOV 2017

BMI View: Taiwanese banks are likely to continue to seek to expand their operations in Southeast Asia as a way of overcoming domestic constraints and the slowing offshore yuan trade amid challenging cross-Strait relations. With the expansion into Southeast Asia being a part of the government's Southbound Policy, we expect the financial authorities to be supportive of such efforts, providing further tailwinds. However, Southeast Asia's poorer investment environment presents downside risks to our relatively optimistic outlook.

According to data released by the Financial Supervisory Commission (FSC), Taiwan banks' total Q117 earnings in the countries targeted by the government's Southbound policy hit a high of TWD1.7bn (USD57mn), marking the highest figure since the policy was released in 2016. We expect this trend to continue over the coming quarters as banks seek to overcome domestic constraints and a still-difficult operating environment in mainland China due to challenging cross-Strait relations. In addition, the FSC is likely to continue to provide regulatory support to banks seeking to further develop their presence in Southeast Asia by strengthening regulatory frameworks and expediting the approval of mergers and acquisitions of local players by Taiwanese banks. This will provide further tailwinds to the banking sector. However, Southeast Asia's weaker investment environment poses downside risks to our relatively optimistic outlook as Taiwanese banks might face legal and operational difficulties in the unfamiliar environment.

Challenging Environment To Fuel Further Overseas Expansion

Cross-Strait Ties Weighing On The Offshore Yuan Trade
Taiwan - Offshore Banking Unit Deposits, CNYbn
BMI, Bloomberg

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