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Report says securities firms restrained by inflexible regulatory regime

Report says securities firms restrained by inflexible regulatory regime

Despite a sharp market correction in early March, the Taiwan Stock Exchange's over-all market turnover has been fairly good in 2007, providing support for securities firms to achieve a profitable year especially for those with a large brokerage franchise, Fitch Ratings said in its latest report.
However, Fitch said it sees Taiwan's securities sector's earnings quality "remaining poor due to rather limited revenues and product diversity, as well as volatile trading results."
"An inflexible regulatory regime and unfavorable taxation are key structural issues constraining the development of Taiwan's equity capital market and thus the securities firms' profitability," it noted.
"Progress in improving the regulatory and taxation regime appears to be slow due to frequent changes of leadership in the Financial Supervisory Commission, as well as a slow legislative process," the credit ratings agency said.
Fitch also warned that competition against smaller independent securities firms will further intensify following Yuanta Securities' - Taiwan's largest securities firm - successful merger with Fuhwa Financial Holding Company.
Last year, the industry registered an improved return on equity of 7.8 percent, compared with 2005's 2.3 percent, and a five-year average of 5.3 percent.
"The improved profitability in 2006 was primarily driven by the buoyant market turnover on the TWSE. However, profit performances in proprietary trading were mixed in 2006 despite a 20 percent increase of the TWSE index in the year, reflecting the difficulties among securities firms' traders to profit from the unpredictable market," Fitch said.
"Underwriting performance was also weak due to TWSE's declining IPO (initial public offering) activities and limited underwriting fees. Lastly, the pending issues of reducing effective tax rates on warrant sales has deterred new warrants issues in 2006 and thus led to a negative impact on securities firms' operating revenue."
The agency said it is expecting that the rating outlook on Taiwan's securities sector will remain stable in 2007.
"Taiwanese securities firms' ability to demonstrate consistent profitability, diversification into new areas of businesses, and better control market risk exposures are key positive rating drivers," Fitch said.


Updated : 2021-10-22 03:21 GMT+08:00