Local banks are well-positioned to meet higher capital requirements in case of an economic or financial crisis, the Financial Supervisory Commission said in a statement yesterday.
The commission said all 35 domestic lenders were financially solid, with higher-than-average capital ratios and better asset quality after passing a stress test last month.
In July, the commission asked local banks to conduct a stress test before Sept. 15 aimed at strengthening their capital ratios and assessing risks in light of the global financial crisis.
The commission demanded banks assess their capital ratios under two scenarios: one, an economic contraction of 1.4 percent, with the unemployment rate hitting 6.08 percent and property prices falling 10 percent; and two, an economic contraction of 2.73 percent, with the jobless rate rising to 7.39 percent and property prices falling 20 percent.
The commission said yesterday that Taiwan was unlikely to experience these two scenarios in the short term, given a spate of promising economic data released recently.
The purpose of the test was to ensure domestic lenders could withstand unexpected credit losses in case of an economic downturn, rising unemployment and falling property prices.
Based on the results of the test, domestic banks’ average capital adequacy ratio stood at 11.07 percent and their Tier-One ratio was 8.54 percent under the “mild conditions” scenario, while the ratios were 9.49 percent and 6.96 percent respectively under the “serious conditions” scenario, the commission said in the statement.
The results indicated that the banks’ capital structure remained solid, it said.
According to the commission’s data, domestic banks reported an average capital ratio of 11.61 percent and an average Tier-One ratio of 9.89 percent as of the end of June.
Moreover, the test results in either case were higher than the regulatory requirements of an 8 percent capital adequacy ratio and a 4 percent Tier-One figure, the commission said.
“Individually, banks were also able to meet the regulatory capital ratio standards via capital enhancement and resource allocation measures under various stress scenarios,” the statement said.
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