The Taiwanese banking system is stable with external headwinds set to dent asset quality, but low interest rates, sustained economic growth and resilient property markets are poised to limit deterioration, Moody’s Investors Service said yesterday.
The sector’s credit outlook is stable and so are the ratings of banks graded by Moody’s, the agency said in a report. The economy would expand by 3.2 percent this year, the report forecasted.
Moody’s put overall loan growth among banks at mid-single digits this year, as banks step up lending in foreign currencies and to small and medium-sized companies to offset decreasing investment and mortgage demand.
Taiwanese banks’ profitability, among the weakest in the Asia-Pacific region, will remain steady but low amid intense competition and abundant liquidity, it said.
Most lenders would retain adequate capitalization in the event of an economic downturn following an increase in loan loss provision to 1 percent this year from the previous 0.5 percent as required by the Financial Supervisory Commission, Moody’s said.
Moody’s expects the central bank’s policy on interest rates to remain unchanged throughout the year, leaving banks’ net interest margins and overall interest income likely to stay intact.
Banks’ non-interest income — including sales of wealth management and insurance products, credit card fees and foreign exchange trading — should also hold steady this year, with manageable credit costs, the agency said.
China emerged as the locus for overseas business, but cross-strait regulatory restrictions curtails aggressive expansions, it said.