The low interest rate spread is jeopardizing the profitability and operations of the banking industry, and any sudden increase in bad loans could result in bank collapses, a banking industry expert said at a seminar on the industry’s outlook yesterday.
SinoPac Holdings (永豐金控) independent director Sophia Cheng (程淑芬), a former managing director and head of research of Merrill Lynch Taiwan, said the interest rate spread — the world’s lowest at about 1 percent — has not only undermined domestic banks’ tolerance of risk but also affected their return on equity (ROE) and share price performance.
If there is another recession, even a mild one, the possible rise in non-performing loans could bring down some domestic banks, she said.
Taiwan’s interest rate spread of roughly 1 percent can only cover a bank’s expenses, but is not enough to account for the average cost of non-performing loans over the long term, Cheng said.
The interest rate spread is the difference between the average yield banks make on loans and investments and the average rate institutions have to pay on deposits and borrowing. It accounts for the major share of banks’ income.
Statistics from the central bank show that the interest rate spread among local banks was 1.18 percent in the third quarter of this year, compared with 2 percent in the same period in 2006.
Although the global financial crisis did not create large-scale systematic risks in Taiwan, it delivered a warning to the banking industry, Cheng said.
If no action is taken to improve the situation, the local banking industry will be less able to deal with an economic crisis.
She also said low interest rates have put huge pressure on insurance companies’ investment spread — the gap between their portfolio yield on invested assets and the interest rate credited on insurance liabilities.
Given that many countries ran up heavy debt to rescue financial markets during the crisis, there is limited room for governments to issue more debt, making it important to learn how to prevent future crises, she said.
On Thursday, the central bank left its key interest rates unchanged as had been expected, noting that inflation is not a concern at the moment.
The bank has left its key rates unchanged since Feb. 19, after having cut them by 237.5 basis points in September last year.
Stephen Garrett, a 27-year-old graduate student, always thought he would study in China, but first the country’s restrictive COVID-19 policies made it nearly impossible and now he has other concerns. The cost is one deterrent, but Garrett is more worried about restrictions on academic freedom and the personal risk of being stranded in China. He is not alone. Only about 700 American students are studying at Chinese universities, down from a peak of nearly 25,000 a decade ago, while there are nearly 300,000 Chinese students at US schools. Some young Americans are discouraged from investing their time in China by what they see
MAJOR DROP: CEO Tim Cook, who is visiting Hanoi, pledged the firm was committed to Vietnam after its smartphone shipments declined 9.6% annually in the first quarter Apple Inc yesterday said it would increase spending on suppliers in Vietnam, a key production hub, as CEO Tim Cook arrived in the country for a two-day visit. The iPhone maker announced the news in a statement on its Web site, but gave no details of how much it would spend or where the money would go. Cook is expected to meet programmers, content creators and students during his visit, online newspaper VnExpress reported. The visit comes as US President Joe Biden’s administration seeks to ramp up Vietnam’s role in the global tech supply chain to reduce the US’ dependence on China. Images on
Taiwan Transport and Storage Corp (TTS, 台灣通運倉儲) yesterday unveiled its first electric tractor unit — manufactured by Volvo Trucks — in a ceremony in Taipei, and said the unit would soon be used to transport cement produced by Taiwan Cement Corp (TCC, 台灣水泥). Both TTS and TCC belong to TCC International Holdings Ltd (台泥國際集團). With the electric tractor unit, the Taipei-based cement firm would become the first in Taiwan to use electric vehicles to transport construction materials. TTS chairman Koo Kung-yi (辜公怡), Volvo Trucks vice president of sales and marketing Johan Selven, TCC president Roman Cheng (程耀輝) and Taikoo Motors Group
New apartments in Taiwan’s major cities are getting smaller, while old apartments are increasingly occupied by older people, many of whom live alone, government data showed. The phenomenon has to do with sharpening unaffordable property prices and an aging population, property brokers said. Apartments with one bedroom that are two years old or older have gained a noticeable presence in the nation’s six special municipalities as well as Hsinchu county and city in the past five years, Evertrust Rehouse Co (永慶房產集團) found, citing data from the government’s real-price transaction platform. In Taipei, apartments with one bedroom accounted for 19 percent of deals last