Taiwan’s financing firms are likely to face greater operating challenges over the next one or two years, as interest rate hikes at home and abroad squeeze interest spreads, and rising delinquency ratios curb profitability, Taiwan Ratings Corp (中華信評) said on Wednesday.
Accounts receivable growth is likely to wane for Chailease Holding Co (中租控股), Hotai Finance Co (和潤企業) and Taiwan Acceptance Corp (裕融企業), in line with a global economic slowdown that is affecting Taiwan, the local branch of S&P Global Ratings said.
A wide mismatch between asset-liability durations exposes these companies to risks linked to high interest rates because tighter liquidity in capital markets and growing financing costs could crimp interest spreads, Taiwan Ratings said.
The sector’s accounts receivable growth might slow to 10 percent this year, from 17.5 percent last year and 13.3 percent in 2021, while its return on assets could deflate to a range of 1.5 percent to 3 percent, Taiwan Ratings said.
Furthermore, high loan-to-value ratios and a softening operating environment could raise delinquency ratios, although adequate product pricing can cover increasing credit costs, it said.
Buy-now-pay-later financing has accounted for a small part of the industry’s total portfolio, but could weigh on asset quality if the high growth trend persists, Taiwan Ratings said.
The negative effects of rising interest rates should begin to taper off in the summer, along with installment repayment and new business repricing, it said.
Proactive capital management is likely to mitigate capital pressure over the next one or two years, Taiwan Ratings said.
Improving funding structures could reduce the sector’s concentration risk on commercial paper, it added.
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