Taiwanese bills finance companies to be unaffected by recent COVID surge: Fitch

The country’s economic resilience has eased BFCs’ operational pressures.

Taiwanese bills finance companies (BFCs) are expected to be relatively unaffected by the recent surge in local COVID-19 cases, unless the surge starts to hurt domestic consumption and other economic activities, reports Fitch Ratings.

A BFC is a company involved in the business of certifying, underwriting, brokering, and trading short-term bills, or a debt instrument maturing within one year, according to Taiwan’s Financial Supervisory Commission.

Fitch expects the impact on Taiwan’s economic growth of the recent COVID surge to be contained.

“Strong exports in the first four months of 2021 have created upside risks to our full-year growth forecast, but the recent outbreak could offset the upside risk to our forecast if it starts to hurt domestic consumption, business activities and manufacturing and ultimately exports and domestic investment,” the ratings agency said in a media note.

Fitch believes that the operating environment for BFCs has stabilised due to Taiwan's economic resilience throughout the pandemic. This has reportedly helped to ease operational pressures on their financial profiles.

“We expect BFCs' asset quality in commercial paper guarantees and fixed-income investments to remain healthy. This, together with our expectation of no major rate hike and abundant system liquidity in Taiwan, should support stable profitability in 2021-2022,” the ratings agency said.

BFCs’ are also expected to retain capitalisation based on steady profitability and growth appetite.

Funding and liquidity profiles will also reportedly remain stable despite their heavy reliance on repo funding for fixed-income investments. This will be mitigated by the high credit quality of their fixed-income holdings and sound system liquidity.