Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s, gave most Taiwanese firms a stable credit outlook for this year, as they benefit from a US economic recovery and lower commodity prices.
However, the international ratings agency assigned a negative credit outlook for the nation’s utilities sector and holds a negative bias on the chemical industry, given volatile crude oil prices.
“We believe that a strengthening US economy will help most Taiwanese corporations maintain stable credit profiles this year, but sectors — including utilities and chemicals — remain under pressure,” Taiwan Ratings credit analyst Lan Yuhan (藍于涵) told a news conference.
Standard & Poor’s expects the nation’s GDP growth to hit 3.7 percent this year, slightly up from an estimated 3.6 percent last year. Both figures are higher than the official statistics agency’s projections.
China’s moderating economic growth and the eurozone’s sluggish recovery might pose significant risks for Taiwan in the next 12 months, the agency said in a report.
The slowdown in China, which accounts for 40 percent of Taiwanese exports, is particularly worrisome, the report said, as a 1 percentage point downgrade in China’s GDP growth could translate into a 2.4 percentage point drop in Taiwan’s economy.
Taiwan Ratings put the downside risks at 25 percent to 30 percent.
Standard & Poor’s expects China’s GDP growth to slow to 7.1 percent this year from 7.4 percent last year.
A greater slowdown could weaken credit ratios and profitability in sectors with a higher revenue concentration in China, the report said.
“The pressure is more evident for local steel and chemical sectors, as excess capacity has heightened over the past few years,” corporate credit analyst Daniel Hsiao (蕭黎明) said.
Plunging crude prices have caused heavy inventory losses in the chemical sector, as seen in fourth-quarter losses of Formosa Plastics Group (台塑集團), Hsiao said.
The losses could persist unless crude price corrections end, Hsiao said, bucking the group’s forecast of a turnaround in late March.
Standard & Poor’s expects crude oil prices to average US$50 a barrel this year, lower than the estimate of US$68 a barrel by Taiwan’s central bank last month.
Taiwan Ratings has a negative outlook on utilities, citing continued uncertainty linked to government energy policies, electricity tariffs and financial burdens from the Fourth Nuclear Power Plant.
The agency also expects real-estate prices to see a downward correction of between 5 and 10 percent this year due to policy measures.
Taiwanese banks can withstand moderate stress from the price volatility, but small lenders could face higher pressure, if their capital strength fails to match their loan growth appetite or concentration on real-estate lending, financial credit analyst Andy Chang (張書評) said.
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