The continued slowdown in loan demand would not constrain the profitability of Taiwanese banks and the situation could improve next quarter when the nation’s economy comes out of the woods, Fitch Ratings said yesterday.
“Taiwanese banks’ profitability is likely to be sustained this year, despite slow growth in loan demand in the first five months of the year,” Fitch Ratings said.
Taiwan’s loan-to-deposit ratio in June dropped to 69.28 percent — its lowest level in two years — after public and private borrowers paid down debts and avoided new lending, the Financial Supervisory Commission (FSC) said on Tuesday.
Fitch said local banks’ continued improvement in profitability, stable operating environment, steady risk profiles and capital buffers supported their stable credit profiles.
Loan demand has slowed across the board, including corporate lending, mortgages and secured retail borrowings, Fitch said, attributing the phenomenon to a drop in property transactions, lackluster exports and an economic slowdown.
That explained why the banking sector’s total loan balance in the first five months edged up only 1 percent from the end of last year, it said.
The government significantly paid down its debts in June after collecting hefty corporate and personal income taxes, the FSC said.
Corporate borrowers also cut debt positions, especially at offshore banking accounts that demanded relatively high interest rates, the FSC said.
Fitch said it expects loan demand to pick up in the fourth quarter and next year, as the economy improves.
The recovery would be particularly evident in corporate and offshore lending, it said, adding that domestic retail borrowing, such as mortgages, might see a modest recovery.
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