CTBC Financial Holding Co (中信金控) yesterday forecast that the central bank would cut interest rates by as much as 25 basis points next week to support the nation’s economy, which would negatively affect the company’s profitability.
Every 12.5 basis points the central bank cuts its interest rates, CTBC Financial’s net interest margin, a critical gauge of its profitability, decreases by 2 basis points, CTBC Financial head of financial management Chiu Ya-ling (邱雅玲) told investors in Taipei.
As a result, CTBC Financial’s profits might be reduced by NT$1.6 billion (US$53.1 million) in such a scenario over the next 12 months, Chiu said, adding that the company holds interest-generating assets of NT$4 trillion.
Photo: Lee Ching-huil, Taipei Times
Last week, Australia and New Zealand Banking Group predicted a rate cut of 12.5 basis points by the central bank.
“Rate cuts by the central bank used to be 12.5 basis points, but it is likely to trim the rates more this time,” CTBC Financial president Daniel Wu (吳一揆) said.
The US Federal Reserve and several other central banks trimmed their interest rates earlier this month, and the Fed is likely to cut rates by another 50 basis points next week and adopt more emergency measures as it did during the global financial crisis in 2008, Wu said.
Some investors anticipate that the Fed would reduce rates to near zero next month, he said.
CTBC Financial also forecast that the New Taiwan dollar might trade at NT$29.5 to NT$31.5 against the US dollar after next week’s predicted rate cut, Wu said.
With the WHO designating COVID-19 a pandemic, CTBC Financial has been preparing for the possible economic fallout under three scenarios, Chiu said.
The first is that COVID-19 would be contained this month or next month, which would have a limited influence on the company’s business, as the Asian economy would stage a “V-shaped” recovery, she said.
The company’s credit card business would still be hit by an annual decline of 8 percent in spending in the first two months, but the value of fixed-income assets would likely rise after rate cuts worldwide, she said.
“However, with the virus spreading to Europe, the possibility of this scenario is comparatively small,” Chiu said.
The second, and more likely, scenario is that the outbreak would subside by June, which would lead to a slow economic rebound in Asia, but the company’s wealth management business would still be affected negatively, Chiu said.
“The Asian equity market would be volatile under the second scenario, which actually gives our traders a chance to make a profit,” she said.
The third and worst-case scenario is that the pandemic would continue spreading until the end of this year, which would result in lasting effects on the economy in Asia and even cause a recession, she said.
CTBC Financial’s Chinese operations contributed only 3 percent of total profit last year, meaning that the outbreak in China would have limited effects on the company, which expects its lending business in China to recover in the second half of the year following a slowdown in the short term.
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his