The nation’s modest GDP growth may continue to lend support to the earnings and asset quality of local banks for the rest of this year, boosting loan demand and easing default risks, Fitch Ratings said yesterday.
Credit demand is likely to strengthen as exports to all major trading partners, such as China, Hong Kong, ASEAN and the US, have increased since the final quarter of last year, and this trend should help boost investment and trade finance needs, the international ratings company said.
Meanwhile, the decline in the property market is moderating, which should ease the pressure on the quality of property-related loans, it said.
Fitch said it expects a slightly higher loan growth this year from last year’s 3 percent increase, across all segments and clientele due to the economic recovery.
Offshore lending and loans to small and medium enterprises (SMEs) should see faster growth as Taiwanese banks pursue better loan yields, it said.
“We expect SME exposure to rise by 6 percent this year, after accounting for 28 percent of the sector’s loanbook last year,” Fitch said.
Lending to the manufacturing sector — especially the information technology segment — has improved since the third quarter of last year, it said.
In addition, mortgage growth should accelerate this year from a 2 percent increase last year after the central bank loosened restrictions on loan-to-value ratios in the first quarter of last year, Fitch said.
Private-owned banks without capitalization constraints are likely to drive the loan growth, as state banks have seen their SME market share decline in recent years, from 70 percent in 2011 to 65 percent last year, the firm said.
SME exposure could heighten the risk profile of Taiwanese banks if they deviate from a focus on prime borrowers and lower underwriting standards, Fitch said, adding that the scenario is not its base case.
The expected loan growth and easing margin pressure should help offset a modest rise in credit costs from overseas loan portfolio following rate hikes by US Federal Reserve, the ratings agency said.
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