The level of corporate and household debt in Taiwan remains manageable, despite an income shock amid the COVID-19 pandemic and mounting stress in global financial markets, DBS Bank Ltd (星展銀行) said in a report last week.
The Singapore-based bank published its report as part of its latest assessment of the potential credit risks in Taiwan and South Korea.
The analysis said that South Korea’s corporate and household sectors, especially small and medium-sized enterprises (SMEs) in the service industry, are highly leveraged and should be particularly vulnerable.
In Taiwan, the corporate debt situation is not particularly worrisome, DBS said, adding that banks’ loans to the corporate sector increased 4.8 percent year-on-year last year, slowing from an increase of 5.6 percent in 2018, while SME loans also grew at a slower pace of 5.6 percent last year, compared with a rise of 6.4 percent the previous year.
Given healthy debt-to-asset ratios and strong interest coverage ratios for listed companies, the overall debt repayment capacity of Taiwanese firms is relatively well positioned, it said.
“The overall debt repayment capacity of Taiwanese companies is strong, if compared with South Korean counterparts. Admittedly, it cannot be ruled out that credit risks in certain SMEs and sectors will rise substantially due to the COVID-19-related economic slump,” DBS economist Ma Tieying (馬鐵英) wrote in the report
Household debt expansion is a greater source of concern for Taiwan than corporate debt as incomes decline, but the household sector’s strong savings position should be a buffer, the report said.
Consumer loans last year rose 4.8 percent year-on-year, accelerating from a rise of 4.2 percent in 2018, while housing loans quickened to 5.4 percent growth last year from 4.8 percent a year earlier, it said.
The ratios of household debt to nominal GDP and household borrowings to disposable income were also at record levels, the report said, citing central bank statistics.
The household debt-to-asset ratio remained low and stable, while liquid assets, such as currency and deposits, accounted for as much as 40 percent of households’ total assets, it said.
“By and large, Taiwan’s indebted household sector is susceptible to the job losses and income declines caused by COVID-19. That said, its strong savings position should help to cushion the impact of income shocks and mitigate the risk of debt defaults,” Ma wrote.
Meanwhile, Taiwanese financial institutions’ asset quality has remained favorable, the report said, citing data that showed Taiwanese banks’ average non-performing loan ratio was a mere 0.2 percent last year, while it was even lower among credit cooperatives at 0.1 percent.
Total capital adequacy ratio among banks, which measures their financial strength against risks, improved to 14.07 percent at the end of last year, the second-highest on record after the 14.18 percent registered in 2017, Financial Supervisory Commission statistics showed.
“The pressure from potential credit defaults should be manageable for Taiwanese financial institutions as a whole,” Ma wrote.
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) secured a record 70.2 percent share of the global foundry business in the second quarter, up from 67.6 percent the previous quarter, and continued widening its lead over second-placed Samsung Electronics Co, TrendForce Corp (集邦科技) said on Monday. TSMC posted US$30.24 billion in sales in the April-to-June period, up 18.5 percent from the previous quarter, driven by major smartphone customers entering their ramp-up cycle and robust demand for artificial intelligence chips, laptops and PCs, which boosted wafer shipments and average selling prices, TrendForce said in a report. Samsung’s sales also grew in the second quarter, up
LIMITED IMPACT: Investor confidence was likely sustained by its relatively small exposure to the Chinese market, as only less advanced chips are made in Nanjing Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) saw its stock price close steady yesterday in a sign that the loss of the validated end user (VEU) status for its Nanjing, China, fab should have a mild impact on the world’s biggest contract chipmaker financially and technologically. Media reports about the waiver loss sent TSMC down 1.29 percent during the early trading session yesterday, but the stock soon regained strength and ended at NT$1,160, unchanged from Tuesday. Investors’ confidence in TSMC was likely built on its relatively small exposure to the Chinese market, as Chinese customers contributed about 9 percent to TSMC’s revenue last
Taiwan and Japan will kick off a series of cross border listings of exchange-traded funds (ETFs) this month, a milestone for the internationalization of the local ETF market, the Taiwan Stock Exchange (TWSE) said Wednesday. In a statement, the TWSE said the cross border ETF listings between Taiwan and Japan are expected to boost the local capital market’s visibility internationally and serve as a key for Taiwan becoming an asset management hub in the region. An ETF, a pooled investment security that is traded like an individual stock, can be tracked from the price of a single stock to a large and
Despite global geopolitical uncertainties and macroeconomic volatility, DBS Bank Taiwan (星展台灣) yesterday reported that its first-half revenue rose 10 percent year-on-year to a record NT$16.5 billion (US$537.8 million), while net profit surged 65 percent to an unprecedented NT$4.4 billion. The nation’s largest foreign bank made the announcement on the second anniversary of its integration with Citibank Taiwan Ltd’s (花旗台灣) consumer banking business. “Taiwan is a key market for DBS. Over the years, we have consistently demonstrated our commitment to deepening our presence in Taiwan, not only via continued investment to support franchise growth, but also through a series of bolt-on acquisitions,” DBS
RSS