The central bank on Sunday issued a rare statement to dismiss claims by Japan’s Nomura Securities Co that six economies, including Taiwan’s, are vulnerable to financial crises over the next three years given rising bubble signs.
Nomura said that its proprietary indicator showed that Taiwan, Germany, Japan, the Netherlands, Sweden and the US are susceptible to financial crises over the next 12 quarters, judging by their ratios of private credit to GDP ratios, debt service ratios, equity prices, property prices and effective foreign-exchange rates.
A Singapore-based research team at Nomura raised the alarm based on Cassandra data modeling, which it said has correctly predicted two-thirds of the past 53 crises in 40 countries since the early 1990s.
“The Nomura report is inaccurate regarding Taiwan as it fails to understand that healthy economic fundamentals, rather credit inflation, push up the nation’s five indicators,” the central bank said.
Trade tensions between the US and China, and the ensuing realignment of supply chains, has allowed Taiwanese firms to enjoy order transfers and an increase in bank loans resulting mainly from companies shifting production lines home from China, the central bank added.
The continuation of money printing by major central banks helps drive up property prices in Taiwan, and the central bank has introduced selective credit controls to slow the pace, it said, adding that bad loans from real-estate lending are low.
Although Taiwanese lenders have increased loans to small and medium-sized borrowers to help them manage the pains induced by the COVID-19 pandemic, all loans are covered by the Small and Medium Enterprise Credit Guarantee Fund of Taiwan (信保基金), it added.
The central bank dismissed concerns over asset price bubbles in Taiwan, saying that strong corporate earnings and a bright outlook for exports account for the rallies in the local bourse this year and last year.
The appreciation in the local currency has more to do with export-driven current account surpluses rather than hot money influxes, it said, adding that it would intervene whenever it spots abnormal fund movements that could destabilize the foreign-exchange market.
“Overall, Taiwan is not in danger of having a financial crisis,” the bank said, adding that banks and life insurance companies all report improving profitability and capital adequacy.
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