Taiwan’s stable economic prospects, sound corporate finances and firm government support will help buoy the nation’s banking system over the next 12 to 18 months, Moody’s Investors Service said on Friday in a report on almost a dozen local lenders.
“Steady economic growth and strong corporate balance sheets will support the asset quality of banks in Taiwan,” vice president and senior credit officer Sonny Hsu (徐嵩宜) said in a statement. “Moreover, the system will maintain steady capitalization and very ample liquidity.”
“Our outlook is consistent with the stable outlooks for the 11 banks that we rate in this system,” he said.
The 11, out of 39 local banks, accounted for 60 percent of total loans in the system at the end of June, Moody’s said.
Taiwan’s economy is expected to grow at a steady and modest pace, with a GDP growth of 2.4 percent this year and 2.2 percent next year, Moody’s said.
However, growth in the two years is unlikely to match last year’s robust results amid waning global trade flows, it said.
The Directorate-General of Budget, Accounting and Statistics in August predicted a growth rate of 2.69 percent for this year and 2.55 percent for next year.
In a sovereign credit analysis released in July, Moody’s maintained its “Aa3” rating on Taiwan, with a stable credit outlook, but said that underlying geopolitical tensions and the concentrated nature of the nation’s exports would leave the economy vulnerable to external shocks, which represented key credit challenges to its domestic banks.
The agency on Friday said that due to a sound macroeconomic environment, system loan growth is forecast to register about 5 percent this year and next, versus last year’s 3.6 percent increase.
Lending to small and medium-sized enterprises would be the key growth driver, it said.
Saying that local lenders have a stable outlook on asset quality, capitalization and liquidity, Moody’s said the rated banks’ return on average assets was expected to register about 0.6 percent this year and next, compared with 0.53 percent last year.
While banks’ profit margins from domestic lending is likely to remain depressed due to intense competition and modest loan demands, profitability on foreign currency-denominated lending is likely to improve, the agency said.
Given Taiwan’s low-interest rate environment, Moody’s said that banks’ credit costs would stay low, but gains in operating efficiency would be offset by their need for investments in higher technology as new business models emerge.
The government has ample fiscal capacity and is expected to remain very supportive of banks, if need be, it added.
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