Taiwan’s GDP could grow 1.5 percent next year, compared with an estimated 1 percent this year, while the central bank is likely to keep policy rates unchanged in the near term, giving financial institutions limited room to raise yield curves, Fitch Ratings said yesterday.
The international ratings agency forecast a range of between 1.5 percent and 2 percent for Taiwan’s GDP growth next year, driven mainly by technology firms whose leadership in the sector should help them weather the storm from ever-changing consumer tastes, Fitch credit analyst Sophia Chen (陳怡如) said.
A continued mild recovery would convince the central bank to stand pat on its policy rates at 1.375 percent for the second consecutive quarter later this month and the chance for rate cuts would become weaker once the US Federal Reserve hikes interest rates later this week, Chen said.
“The Fed’s move would serve as a policy guide, although the correlation [between Taiwan’s and the US’ interest rates] is on the decline as Taiwan assigns more importance to yuan movements,” Chen said.
Fitch expects China’s GDP growth to slow to 6.4 percent next year, with the yuan weakening to 7.2 against the greenback over the next 12 months, the report said, adding that the soft performance would weigh on economic sentiment in the region, making interest rate hikes ill-advised.
The low-interest environment would constrain profitability for financial institutions in Taiwan, even though excessive savings suggest ample room for wealth-management product sales and fee income increases, Fitch analyst Jenifer Chou (周筱娟) said.
A total of NT$6 trillion (US$188.3 billion) worth of money sits idle, which could translate into a huge fee income growth if banking institutions could direct them to wealth-management products, Chou said.
Fitch expects returns on assets to rise marginally to 0.59 percent for local banks next year, from the 0.57 percent projected for this year, slowing from 0.64 percent last year and 0.68 percent in 2014 due to the tapering benefits of yuan business.
The trend corresponds with a decline in exposure to China, which accounted for 6.2 percent of overall lending operations among Taiwanese banks in the first half of this year, from the peak of 7.9 in 2014, Fitch observed.
The banking sector might seek to boost its earnings ability by taking part in syndicated loan opportunities abroad, Chou said.
Downside risks to the forecast include a faster economic slowdown in China and trade barriers raised by US president-elect Donald Trump, Fitch said.
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