Taiwan’s steady GDP growth and housing market could lend support to the credit profiles and ratings of local private banks, Fitch Ratings said on Wednesday.
Fitch is predicting GDP growth of 3.3 percent for Taiwan this year and 2.8 percent next year, after a robust 6.5 percent pickup last year, driven by strong exports of high-tech products and reshoring of manufacturing activities from abroad, mainly China.
“We believe that rated banks in Taiwan will maintain steady credit profiles in 2022-2023,” Fitch said in a report, referring to CTBC Bank (中國信託銀行), King’s Town Bank (京城銀行), Taiwan-based Shanghai Commercial and Savings Bank (上海商業儲蓄銀行), Far Eastern International Bank (遠東國際商銀), EnTie Commercial Bank (安泰銀行), Sunny Bank (陽信銀行) and Taichung Commercial Bank (台中商銀), among others.
The banks’ consistent risk profiles, Taiwan’s economic resilience and a stable housing market are to buttress their credit profiles and ratings, it said.
The banks’ impaired-loan ratios could rise modestly in this year and next, mostly from unwinding of relief lending in the tourism and retail sectors, as well as offshore lending, it said.
However, their asset quality has sufficient headroom and should remain stable, Fitch said.
The positive outlook for earnings and profitability across the board is supported by steady loan and fee-income growth, along with a modest rise in interest margin as market interest rates increase, it said.
The banks’ liquidity profiles also should remain stable, benefiting from ample system liquidity as reshoring activities continue. Continued reshoring should support a stable housing market and medium-term growth in lending and fee income from wealth management, it said.
Ratings upside is limited in the absence of major improvements in their franchises and financial profiles, Fitch said, adding that such improvements are challenging given that the sector is highly fragmented.
Taiwan has the most fragmented banking sector among developed markets in the Asia-Pacific region, and consolidation remains slow, despite a few mergers in the past few years, it said.
Regulators have tightened oversight of banks’ property exposures to prevent further build-up of systemic risks in light of escalating housing prices and high loan concentration in the property sector, Fitch said.
Housing prices rose 15 percent last year, following 7 percent growth in 2020, it said, adding that mortgage and construction loans reached 37 percent of domestic loans last year, up from 35 percent in 2019.
Fitch expects the housing market to remain buoyant, as continued reshoring is expected to supply strong housing demand despite prudent measures on part of the government.
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