Taiwan’s banking sector stable despite recent COVID infection spike: Fitch

All local banks’ outlooks remain stable thanks to Taiwan’s economic resilience.

Taiwanese banks are expected to maintain stable financial profiles through 2022 despite the recent surge in local COVID-19 cases, reports Fitch Ratings.

“We expect the impact on economic growth to be contained, but the outbreak may offset the upside risk to our forecast if it starts to meaningfully affect business activities and manufacturing - and ultimately exports, domestic consumption and investment,” said Fitch analysts Cherry Huang and Sophia Chen in a report.

“We expect the asset-quality deterioration—most likely from the unwinding of relief lending and offshore exposure—to be manageable in light of Taiwan's economic resilience and our expectations for a stable property market,” Chen and Huang added.

This also supports the analysts’ expectations for steady profitability over 2021-2022, on moderately higher loan growth, reduced margin pressures and steady fee-income growth.”

Fitch forecasts gross domestic product (GDP) to grow by 4.5% in 2021 before mellowing out to 3.6% in 2022, up from 3.1% in 2020. Strong exports in the first four months have created upside risks to Fitch’s full-year growth forecast, noted Huang and Chen.

Taiwan’s economic resilience should support healthy corporate profits and low unemployment, and in turn ease operational pressures on banks' asset quality, profitability and capitalisation, the analysts said. This underpinned their outlook revision on four banks, namely CTBC Bank, King's Town Bank, Sunny Bank and Taipei Star Bank to stable from negative last April.

Fitch now holds a stable outlook for all Taiwanese banks, in part driven by either these banks’ their intrinsic credit profiles or by expectations of government support.

Local banks also outperformed their 2019’s loan growth, expanding 6% in 2020 against 2019’s 4%, underpinned by mortgage and property lending.

Chen and Huang also expect sustained capitalisation to meet higher capital charges by 2023-2024.