Analysts last week gave a reserved outlook for the nation’s financial companies, due to rising pressure from a stronger New Taiwan dollar.
Following a 6 percent appreciation against the US dollar, local financial companies are expected to see higher foreign-exchange hedging costs, while not seeing many further gains in net interest margin from the commencement of the US Federal Reserve interest hike cycle, Yuanta Securities Investment Consulting Co (元大投顧) analyst Peggy Shih (施姵帆) wrote in separate reports.
Interest rate hikes in the US have already been reflected in US bond yields, limiting further earnings growth for life insurers, Shih wrote.
Fubon Life Insurance Co (富邦人壽), the main unit of Fubon Financial Holding Co (富邦金控), is expected to see its foreign-exchange hedging costs for last quarter rise to NT$8.5 billion (US$280.2 million), compared with NT$4.2 billion in the same period last year, Shih wrote in a report on Friday last week.
While Cathay Life Insurance Co (國泰人壽), the main arm of Cathay Financial Holding Co (國泰金控), would also be affected by rising hedging costs this year, each 0.25 percent interest rate hike by the Fed would increase the company’s recurring earnings yield by 2 to 3 basis points, Shih wrote in a separate report on Monday last week.
The banking units of Fubon and Cathay have set modest loan growth targets of less than 10 percent for this year in the absence of strong profitability catalysts in their respective lending businesses, Shih said.
Meanwhile, SinoPac Securities Investment Service (永豐金投顧) said that financial companies whose banking units have a larger US dollar lending portfolio would fare better as the Fed turns hawkish.
Overall, Taiwan’s major banks are expected to see earnings rise by a range between NT$200 million and NT$900 million, translating to an earnings per share gain of between NT$0.02 and NT$0.07, depending on their US dollar loan mix, SinoPac said in a report published on March 16.
With US dollar lending representing 37 percent of its total loan book, state-run Mega Financial Holding Co (兆豐金控) stands to gain the most among its domestic peers, followed by CTBC Financial Holding Co (中信金控) at 24 percent and First Financial Holding Co (第一金控) at 21 percent, the SinoPac report said.
By contrast, US dollar loans made by Taipei Fubon Commercial Bank (台北富邦銀行) and Cathay United Bank (國泰世華銀行) were tallied at 18 percent and 12 percent respectively, it said.
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