Moody’s Investors Service yesterday said that the profits of Taiwanese banks would drop by at least 6.13 percent this year due to narrowing net interest margins and diminishing lending.
The banks’ aggregate profits totaled NT$319.59 billion (US$9.97 billion) last year, marking the first year-on-year decline in the past nine years, and the trend is likely to continue this year, the rating agency said.
“Banking profits are expected to fall below the NT$300 billion mark this year, as lucrative fee income streams begin to vanish,” Moody’s analyst Sonny Hsu (徐嵩宜) said.
Banks have seen a dip in fee income as regulators began to tighten restrictions on the products they have been selling while functioning as a distribution network on behalf of other financial institutions, such as yuan-linked target redemption forwards (TRF) and life-insurance policies.
Hsu said that banks’ return on assets performance is anticipated to dip by 0.1 percent, which translates to an earnings impact of about NT$39.6 billion, based on the industry’s estimated combined assets of NT$39.6 trillion.
The tepid housing market is not likely to affect banks’ asset quality significantly, as mortgages are collateralized, Hsu said, adding that banks are resilient enough to withstand a 40 percent drop in property values.
However, banks might see decreased lending demand and rising default risk for construction and real-estate development companies, as builders grow increasingly strained by low property turnover and an inventory glut, Hsu said.
Local banks are already facing listless loan growth due to a lack of expenditure needs among businesses, while they have reduced credit lines for troubled sectors, such as LED and solar power manufacturers.
This year, banks might see loan growth limited to a mid-single digit percentage, Hsu said.
The Financial Supervisory Commission has raised provision requirements on banks and other restrictions on TRFs, after volatile movements in the yuan exchange rate resulted in massive losses for investors.
The commission has also slashed the amount of fees banks are allowed to charge from life insurers from 5 to 3 percent of the policy sold, as excessively high premium loading have begun to impair insurers’ ability in producing the required returns for policy holders.
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