Political uncertainty and regulation has blighted the progress on the Economic Co-Operation Framework Agreement between Taiwan and China. Now, slowly but surely, agreements are finally being reached that should benefit Taiwan's banks and businesses.

Looking at the liquidity and capitalisation levels of Taiwanese banks may give a false impression of a healthy banking sector. But with the world’s second lowest net interest margin, the country's banks are struggling in an overcrowded market.

A new agreement between Taiwan and China has opened up the financial markets to each country's banks. With growth slowing in Taiwan, its banks are looking to expand by targeting the many Taiwanese businesses that have become established in China.

Taiwan's economy enjoyed an apparent boom in 2010, enjoying GDP growth of about 10%, but the jury is still out on whether that represents sustainable recovery.

The imminent signing of an economic co-operation framework agreement between Taiwan and China promises to bring major structural shift in Taiwan's highly state-dominated banking industry. Writer Gavin Bowring