Taiwan’s three online-only banks are narrowing their losses as they scale up operations, but continued shareholder backing remains essential for them to achieve profitability, Fitch Ratings Ltd said in a report released yesterday.
Losses at Rakuten International Commercial Bank Co (樂天國際商業銀行), Line Bank Taiwan Ltd (連線商業銀行) and Next Commercial Bank Co (將來商業銀行) have moderated, although growth momentum is slowing as client adoption falls short of expectations.
“Shareholder support is crucial until they become profitable and is the key driver for their ratings,” Fitch said.
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The three banks, launched with a goal to reshape Taiwan’s financial sector, have reported losses since their inception. While their customer bases have expanded, profitability remains elusive.
Analysts have said that the lenders need to diversify beyond deposits and small consumer loans, developing digital wealth management, small-business finance and regional fintech partnership services.
Regulatory relaxation — likely as soon as next quarter — could provide a boost by improving deposit inflows and stimulating lending to small and medium-sized enterprises (SMEs), Fitch said.
The Financial Supervisory Commission is considering easing offline requirements for virtual banks, including face-to-face identity checks and in-person client meetings at service centers.
The move is expected to help the online-only banks expand funding sources and lending options.
Line Bank’s loan-to-deposit ratio rose to 87 percent in the first half of this year, up from 78 percent at the end of last year, Fitch said.
Rakuten Bank and Next Bank are also focusing on SME lending and syndicated loans to accelerate credit growth.
However, further investment in staffing and digital infrastructure would require fresh shareholder funding.
According to local rules, banks must replenish capital once accumulated losses reach one-third of paid-in capital.
To absorb losses and support expansion, Line Bank raised NT$7.5 billion (US$247.57 million) in 2022 and NT$5 billion in June this year through rights issues. Next Bank raised NT$2.6 billion in 2023, and it and Rakuten Bank might need additional capital next year.
“The need for capital support underscores their dependence on parent groups to fund expansion until they can achieve sustainable earnings,” Fitch said, adding that its rating assumptions rest on the banks’ strategic roles within their parent ecosystems.
That view could change if the three lenders are no longer regarded as strategically important in terms of franchise value, ecosystem integration or synergies, Fitch said.
Taiwan’s high smartphone penetration rate and robust appetite for digital services have created fertile ground for virtual banks, particularly among young adults, who tend to be more willing to try new platforms.
Even so, traditional Taiwanese banks remain powerful, trusted and increasingly digitalized, posing a formidable challenge to their online-only rivals.
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