The 2019 novel coronavirus outbreak does not pose an immediate or evident threat to the creditworthiness of Taiwan’s financial services companies, despite the close economic ties between Taiwan and China, according to Taiwan Ratings Co (中華信評), the local arm of Standard & Poor’s (S&P) Global Ratings.
The novel coronavirus has had a strong detrimental effect on the industrial output and flow of goods within China, and has disrupted the operations of many major Taiwanese companies in the process, the ratings agency said, adding that the degree of event risk varies by industry.
“While the immediate economic impact on China is visible, we believe Taiwanese banks have good capital buffers to cushion against the potential fallout from the outbreak,” Taiwan Ratings credit analyst Lan Yu-han (藍于涵) said in a note on Friday.
These buffers should protect banks against deteriorating asset quality or loan growth as economic activity slows, she said.
The average Tier 1 capital ratio for banks operating in Taiwan stood at 11.84 percent as of the end of September last year, Taiwan Ratings data showed.
Taiwanese banks already scaled down their China exposure to about 4 percent of their total asset book before the outbreak, Lan said.
Decreased China exposure had much to do with risk aversion on the part of Taiwanese banks amid the US-China trade dispute, she said.
Lending to the transportation, lodging and dining sectors, which have been hit hard by the outbreak, accounts for less than 5 percent of banks’ total loan book, Taiwan Ratings data showed.
A prolonged outbreak well into the second quarter would heighten the risk of a plunge in property prices in Taiwan and trigger a knock-on effect on banks’ mortgage exposure, Lan said.
Should this scenario materialize, the exposure is likely to be manageable, because banks generally keep relatively low loan-to-value ratios for their mortgage operations, she said.
On the other hand, Taiwanese life insurers are more vulnerable to potential capital market shocks as the outbreak evolves, the ratings agency said.
That is because insurers’ credit profiles are more susceptible to market jolts, it said.
A material downturn in the equity market would weaken insurers’ capitalizations, which offer only a thin buffer against volatility, she said.
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