Debt-relief plans could increase risks for lenders

By Crystal Hsu  /  Staff reporter

Fri, Feb 14, 2020 - Page 12

In the wake of the COVID-19 outbreak, the government’s debt-relief program might increase asset-quality risks for Taiwanese lenders in the short term, but the burden should be manageable, Fitch Ratings said yesterday.

The debt-relief measures are mainly to be carried out by state-run banks, which would have the government’s support, if necessary, the ratings agency said.

The measures allow for deferred repayments and new lending at preferential rates for borrowers in the affected sectors, mainly tourism and transportation, as well as small businesses and individuals.

Tourism and transportation, some of the hardest-hit sectors, accounted for less than 3 percent of system loans in the nation, Fitch said.

However, local banks might experience some stress in lending to small and medium-sized enterprises, it said, as related operations account for 29 percent of system loans.

Personal loans make up 39 percent, and the virus epidemic has slowed retail and consumption activities, the agency added.

Loans to small and medium-sized businesses are mostly collateralized with real estate, and Taiwanese banks have maintained a low-risk appetite for personal loans since the credit card debt crisis in 2005 and 2006, it said.

Conservative operations should limit credit losses even though delinquencies might increase, Fitch said.

The electronics sector is another industry that might experience asset-quality stress amid supply chain disruptions and travel restrictions, it said.

The sector makes up about 10 percent of system loans in Taiwan, including exposure through local banks’ offshore banking units, it added.

“The disruption of the electronics supply chain may weigh on some Taiwanese corporations and their debt-servicing capability, but we do not expect significant asset-quality deterioration as those firms are larger and more established,” Fitch said.

Moreover, many Taiwanese companies have diversified their production bases from China since 2015, and moved capacity to Taiwan and Southeast Asia to reduce reliance on China, it said.

Still, the severity of the outbreak and the impact on regional growth prospects pose near-term risks to asset quality, it said.

Fitch said it would change its assessment of the banks’ credit profile if the relief measures become widely adopted, resulting in a system-wide increase in debt leverage.

Separately, S&P Global Ratings said in a report that the outbreak is disrupting the global technology sector, especially hardware and electronics manufacturing services providers, and semiconductor companies.

“Our best case is that the virus will be contained globally in March 2020 (no new transmissions in April), allowing travel and other restrictions to be unwound by the middle of the second quarter,” S&P said in a statement.

However, if the outbreak proves more difficult to contain, the effects on the tech sector could be extensive, as lengthy factory shutdowns or significant underutilization could materially lower the global output of tech components, subassemblies or finished goods, it said.