Banking sector’s outlook stable, ratings firm says

‘INCREASING RISKS’::The US-China trade spat poses a threat to lenders’ credit profiles, especially if it spills over to Taiwan and harms their ability to repay loans

By Chen Cheng-hui  /  Staff reporter

Mon, Feb 11, 2019 - Page 15

The outlook for the nation’s banking sector this year remains stable on the back of lenders’ good capital buffers and ample market liquidity, Taiwan Ratings Corp (中華信評) has said.

However, uncertain economic outlook at home and abroad could constrain business growth and asset quality for Taiwanese banks, the company said in a report.

The US-China trade spat also poses a growing threat to banks’ credit profiles, especially if trade tensions spill over into Taiwan’s corporate sector and reduce the lenders’ ability to repay their loans, the Taipei-based subsidiary of S&P Global Ratings said.

“We expect Taiwanese banks to face moderately increasing credit risks and costs in 2019, as well as strong margin pressure from stiff competition and low interest rates at home,” Taiwan Ratings credit rating analyst Eunice Fan (范維華) said in a news release on Jan. 30.

“However, we assess most rated banks to have sufficient capitalization to meet the increasing cost of governance, compliance and cybersecurity needs, and support stable credit profiles over the next year,” Fan said.

The trade row has so far had little effect on Taiwanese obligors, the ratings agency said.

However, a prolonged dispute or an expansion in tensions or tariffs could reduce the debt servicing capacity of export-oriented Taiwanese corporates, which would in turn have a negative effect on banks’ asset quality and growth momentum over the longer term, it said.

Moreover, lenders’ credit ratings could come under pressure if they pursue aggressive expansion overseas or through mergers and acquisitions at home without maintaining sufficient capital buffers or adequate risk controls, the company said.

As for the insurance sector, slower economic growth and capital market volatility could weigh on credit profiles of life and non-life insurers, Taiwan Ratings said.

Like their regional counterparts, Taiwanese insurers also face pressure on investment return and their bottom lines, due to uncertain interest-rate policies at home and abroad, it said.

However, adequate capital buffers coupled with life insurers’ proactive risk management and non-life insurers’ strong underwriting would help them meet the challenges ahead, Taiwan Ratings said in a separate report released on Jan. 17, maintaining a stable outlook for the sector.