The Taiwan Banker

Taiwan’s financial industry has recorded brilliant 2021 performance, with overall profits reaching a new record of NT$ 936.6 billion. Chairman Thomas Huang of the Financial Supervisory Commission (FSC) said that capital markets around the world have prospered as countries have implemented loose monetary policies. The life insurance industry made a pre-tax profit of NT$ 388.5 billion last year, the most among finance industry sub-sectors. Due to the surge in Taiwan stock prices, securities firms also made pre-tax profits of NT$ 119.6 billion. In addition, the banking industry saw an increase in net interest income through the year. With pre-tax profits of over NT$ 385.6 billion, Taiwan's financial industry is in far better shape than it was 10 years ago, but many risks still lie ahead. Huang hopes that the industry will “remain cautious in prosperity,” able to grasp both risks and opportunities. Values-based finance Major international central banks are continuing their easing policies, and international stock and bond markets remain bullish, encouraging investment in business expansion. The insurance industry will make NT$ 411.1 billion in 2021, with an annual growth rate of 84.3% - a record high, surpassing the banking industry for the first time. The life insurance industry earned NT$ 388.5 billion, with an annual growth rate of 88.5%, and property insurance earned NT$ 22.6 billion, growing 33%. This boom has been made possible by abundant funding. In addition to the new fractional shares and transaction-by-transaction trading, the securities market has also undergone structural changes, allowing securities companies to make great profits from their own business and brokerage business, which grew 83%; profits also reached a new high. The trust industry also made a pre-tax profit of NT$ 15.813 billion last year, an annual increase of nearly 44%, due to growth in assets under management. Banks, which usually earn the most of the three financial industries, also performed well in 2021. Their pre-tax profits were NT$ 337 billion, growing 7.8%. The gradually improving performance of the industry, following the era of low spreads, is a positive development. Although the deposit/lending ratio hit a record low for recent years, asset quality can be said to be the best over the past few years, and credit risk has been properly controlled. The capital adequacy ratio of domestic banks is 14.82%, their average NPL ratio is 0.19%, and average coverage ratio is 729% – all of which are the best in history. Nevertheless, risks still exist; neither regulators nor financial institutions should be complacent. Huang said that the industry should uphold a cautious and modest attitude, plan ahead, improve its ability to take risks in the face of adversity, and strengthen its resilience to emergencies and changes. In particular, in response to trends such as aging, climate change, technological change, and the gap between the rich and the poor, it should understand that the public has increasing expectations for integrity, ethics, fairness and justice. Huang emphasized a push for “values-based finance”: corporate governance, legal compliance and internal controls are as important as profitability, and financial institutions should also display public values such as a culture of integrity, environmental sustainability, social welfare and care for the vulnerable in their business strategies and operations. Responding to the needs of the next generation For a visionary, situational changes sometimes mean new opportunities. For example, the population of Taiwan is aging, and the public will become more interested in retirement planning. This will create business opportunities in banking, securities, and insurance. The FSC has also asked the Financial Research Institute of TABF to launch a senior financial planner course, hoping that more financial practitioners and caregivers understand financial products for financial planning, housing for the elderly, and retirement, so that consumers can prepare early for old age. In addition, banks such as Mega Bank, China Trust, Shanghai Commercial Bank, Cathay United Bank, First Bank, Taiwan Cooperative Bank, UBS Taipei, as well as Yuanta Securities, Mega Securities, Everbright Securities, Fengzheng Securities, Cathay Pacific Securities, and Yuanfu Securities, have already been approved under the FSC’s New Wealth Management Solution. In response to the advent of fintech, traditional banks should also actively respond to the needs of the next generation. Huang said that after the FSC started issuing licenses for virtual banks, it also expected the finance industry to think about the use of scenario-based finance to meet the needs of consumers of different generations. Video insurance applications and information security have become “important opportunities for digital transformation in the life insurance industry.” At the same time, insurers must also expand their horizons, learning more new skills to create new value-added services. Sustainability has gone global Huang said that the issues of global sustainability and climate change have become international concerns. The finance industry must take the lead. The FSC is establishing frameworks and foundations to promote effective green and sustainable financial markets. It is improving the quality and transparency of ESG information disclosure, and establishing definitions for green and sustainable activities, guiding financial institutions to gradually expand their scope from investment and financing in green energy to supporting green and sustainable development, and cultivating their ability to respond to developing climate change risks, both to build resilience and to capture business opportunities. In order to prevent greenwashing, the FSC will also work with the Environmental Protection Agency to study and formulate a sustainable taxonomy for Taiwan, helping industry and finance determine what activities are green or sustainable. The FSC will start with three major industries: real estate, construction, and logistics. At the same time, it is also planning the Sustainable Development Roadmap for Listed Companies. Tn July 2021, the European Union proposed a carbon border adjustment mechanism, and the Environmental Protection Agency has announced that the Greenhouse Gas Reduction and Management Law will be revised into the Climate Change Response Law. In order to help companies set their carbon reduction goals as soon as possible, the Sustainable Development Roadmap will be released in the near future, setting timelines for disclosure of greenhouse gas information. In addition, the FSC will also refer to international and corporate governance evaluation practices to plan sustainability evaluations for domestic financial institutions. The FSC strives to keep pace with the times, adjusting its systems and measures according to domestic and international trends, taking into account both risk management and business development. “When flowers bloom, butterflies naturally appear.” Huang will continue to promote six major plans to lay the foundations for the next stage of growth: the Corporate Governance Blueprint 3.0, Green Finance Action Plan 2.0, Fintech Development Roadmap, Next-generation Insurance Solvency System, Trust Business 2.0, and Financial Security Action Plan. Huang believes that in the face of the changing market situation, a great deal of work lies ahead for the FSC, working together with the financial industry. He believes that while the financial industry innovates and grows, it should also practice the concepts of honest operation, people-oriented services, and values-based judgement. He believes that because financial institutions act as capital intermediaries, it is very important for them to establish and implement core values. The key to long-term successful operation lies in gaining the trust of customers. Loyalty is the only way to establish a relationship of trust, and is also the core value of the industry. Three ways to promote the foundation of financial value Huang recommended that financial institutions use three methods in order to establish the concept of “values-based finance,” establish values such as a culture of integrity, environmental sustainability, social welfare, and care for the disadvantaged, and implement them at the practical level. First, they should set business strategies and goals. An organization's senior management must first set clear business strategies and goals, clearly linked with their values, to establish business culture. For example, the international community uses ESG to measure whether an enterprise has sustainable operation and development capabilities. Therefore, financial institutions need to incorporate related indicators into their management strategies and goals so that they can be implemented in actual operations. Next, they must establish systems and internal norms through systems. Current regulations require financial institutions to establish systems for internal business controls, compliance, whistleblowing, and employee assessment and remuneration, etc. By examining whether internal systems and norms incorporate business the strategies and goals, all work can move in the same directions. Finally, this must be implemented through an accountability system. After the systems and norms are formulated, they must be implemented from top to bottom in order to realize true organizational management. Each business line should be driven by responsible supervisors and personnel. Supervisors are key; they should not only be familiar with the company's strategies, goals, systems and norms, but also lead people to implement them, thereby emphasizing accountability. That is to say, all relevant supervisors should take responsibility for promotion and implementation. Based on previous experience, some financial institutions even with complete strategies and internal systems and norms have not been able to implement them in actual operations, resulting in staff indifference to compliance. Huang said that financial culture takes time to develop, and must be gradually shaped from actual cases. In addition to promoting accountability systems, the UK Financial Conduct Authority (FCA) has also held seminars on culture and financial behavior, aiming to promote a culture of integrity by changing the behavior of financial practitioners, and thereby strengthening the discipline of the industry. The US Federal Reserve also holds similar symposiums, public courses and industry forums every year, especially for young front-line practitioners. It uses case studies to show them how to seek moral autonomy and make correct decisions when they encounter moral dilemmas, and guides them from profit-centered thinking to social responsibility, to practice sustainable development in terms of integrity management, environmental protection, responsible governance, and inclusive finance. Joining hands with academia Finance is one the most service-oriented industries. Practitioners must not only show international thinking, but also technological and sustainability planning and promotion abilities. Huang also invited the Taiwan Financial Services Roundtable and TABF to jointly promote the International Finance Institute in order to cultivate internationalized experts in fintech, green finance, and sustainable development. The Institute will have courses and internship opportunities in line with financial practices, combined with international and industry-university cooperation, to assist the future development of the industry and enhance its strategic position. The Ministry of Education has now allowed two universities to establish international finance schools. The International Finance Institute symbolizes recognition of finance as a key area of national development. Therefore, when planning courses and content, we are thinking about what the country or global financial markets will look like, and what kind of skills will be needed over the next 10 or 20 years, as well as the academic foundations and technologies lacking in Taiwan. Huang also suggested that the Institute have a course on the history of financial development in Taiwan, so that students can understand mistakes through historical events, avoid repeating them, and learn accurate models of finance. As the Institute is developing, Huang also hopes to find and improve outdated regulations. By learning the characteristics of Taiwan’s culture and financial market, he can find its advantages and opportunities in comparison with other countries. Can Taiwan turn a disadvantage or threat into an opportunity? What basic research on the internet, technology, or ESG is necessary for future expansion? Answers to these questions help Taiwan move on to the next stage of its development.