Following Standard & Poor's reduced credit rating for Taiwan last week, another rating agency said it has decided to rate Taiwan for the first time.
"Taiwan's sovereign credit rating is expected to fall somewhere between Hong Kong and China," said Brian Coulton, director of sovereign and international public finance at Fitch IBCA, Duff & Phelps, at a press conference in Taipei yesterday.
Coulton cited the growing importance of Taiwan's economy as the impetus behind the decision to provide a sovereign credit rating on the nation.
The actual rating -- which Fitch has never done on Taiwan before -- will not be released until mid-September, Coulton said.
While Taiwan is facing a slowing economy, the country's low foreign debt and high foreign exchange reserves are likely to give it a pretty good standing in its first sovereign rating, Coulton said.
Fitch gave Hong Kong a long-term sovereign rating of "AA-" in June. Meanwhile, China was rated "A-" in 1993, the latest rating available. South Korea, was rated "BBB+" in March last year, and Malaysia was rated "BBB" in December 1999, according to a Fitch report.
"Taiwan is currently encountering a technical economic recession, with this year's growth rate on gross domestic product to be expected between zero growth and 2 percent, which is the lowest in the last 25 to 30 years," Coulton said. "A technical recession is defined as having a negative growth rate for two consecutive quarters," he said.
"However, since Taiwan has only about US$30 billion of foreign debt and another US$150 billion in foreign net assets, Taiwan's international stand on public finance only falls behind Japan and Singapore in Asian countries. Meanwhile, Taiwan's US$110 billion in foreign exchange reserves also provide ample liquidity for international financing," Coulton said.
"The strong financial position has placed Taiwan ahead of many other Asian countries in the rating process, even with the current economic difficulties," he said.
Fitch is also going to conduct rating reviews on the banking sector.
"We are doing credit rating analysis on 35 financial institutions of Taiwan," said Paul Grela, associate director of financial institutions (Asia) at Fitch IBCA.
"The non-performing loan ratio in Taiwan's banking sector is somewhere between 9 percent to 10 percent, and we expect the ratio would increase to between 10 percent to 12 percent in the future. We believe such a ratio, although quite high, is manageable by Taiwan's banking sector. Therefore, we do not expect a financial crisis ... will occur in Taiwan in the near term," Grela said.
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