Taiwan’s steady GDP growth supports credit profiles and ratings

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  • By Crystal Hsu / Staff Reporter

Taiwan’s steady GDP growth and housing market could provide support for local private bank credit profiles and ratings, Fitch Ratings said on Wednesday.

Fitch forecasts GDP growth of 3.3% for Taiwan this year and 2.8% next year, following a strong recovery of 6.5% last year, driven by strong exports of high-tech products and the relocation of manufacturing activities from abroad, mainly China.

“We believe Taiwan-rated banks will maintain stable 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), Shanghai Commercial and Savings based in Taiwan. 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.

Banks’ consistent risk profiles, Taiwan’s economic resilience and a stable housing market must bolster their credit profiles and ratings, he said.

Banks’ impaired loan ratios could rise slightly this year and next, mainly due to the unwinding of relief loans in the tourism and retail sectors, as well as offshore loans, he said.

However, their asset quality has ample headroom and should remain stable, Fitch said.

The positive earnings and profitability outlook across the board is supported by steady growth in loans and fee income, as well as a slight increase in interest margin as market interest rates rise, did he declare.

Bank liquidity profiles are also expected to remain stable, benefiting from ample liquidity in the system as reshoring activities continue. Continued relocation should support a stable housing market and medium-term growth in lending and wealth management fee income, he said.

Rating upside is limited without major upgrades to their franchises and financial profiles, Fitch said, adding that such upgrades are difficult given the industry is highly fragmented.

Taiwan has the most fragmented banking sector among developed markets in the Asia-Pacific region, and consolidation remains slow, despite some mergers in recent years, he said.

Regulators have stepped up oversight of banks’ real estate exposures to prevent a further buildup of systemic risks in light of escalating house prices and high lending concentration in the real estate sector, Fitch said.

House prices rose 15% last year, after growing 7% in 2020, he said, adding that mortgage and construction lending reached 37% of domestic lending last year. , compared to 35% in 2019.

Fitch expects the housing market to remain buoyant as continued relocation is expected to meet strong housing demand despite cautious government action.

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