The credit outlook for the nation’s banking system is expected to remain stable over the next 12 to 18 months, but the fragmented competitive landscape is likely to constrain the sector’s profitability, Moody’s Investors Service said yesterday.
The evaluation came as the nation’s export-reliant economy stayed on track for a modest recovery at the expected pace of 3.3 percent this year, up from 2.1 percent last year, the international ratings agency said.
The wider environment is favorable for banks to maintain credit metrics in terms of liquidity, capital positions and asset performance, but excessive liquidity and competition are expected to keep their profits low, Moody’s analyst Ginger Kao (高玟君) said.
Moody’s assigned the “stable” ratings after looking into the operating environment, asset quality and capital, funding and liquidity, profitability and efficiency, and system support.
However, there are some potential risks that could challenge the stable outlook, including the appreciation of property prices, given that real-estate-linked loans account for 40 percent of overall loan books, Kao said.
The same concern drove the central bank to tighten lending terms for second homes in more areas of New Taipei City and parts of Taoyuan County in June.
Externally, Taiwan’s increasing exposure to China may allow Taiwanese banks to leverage China’s stronger growth performance, but make them more vulnerable to China’s economic slowdown and rebalancing risks, Kao said.
Moody’s expects Taiwanese banks to see stronger interest income from a potential rise in the policy rate, higher-margin loans to small and medium-sized enterprises and foreign-currency lending.
However, the hike in the business tax and other market development may dampen overall profitability, the analyst said. Banks may also face higher funding costs for US-dollar loans as the quantitative easing measures come to an end.
Moody’s rates 10 Taiwanese banks; all received a stable outlook except CTBC Bank (中信銀) due to its acquisition of the Tokyo Star Bank.
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