The Financial Supervisory Commission (FSC) yesterday advised domestic banks to strengthen their provisions to guard against any potential impact from the US’ tapering of its quantitative-easing (QE) measures and a fragile global economic recovery.
The commission made the suggestion one day after Moody’s Investors Service maintained its stable outlook for Taiwanese banks, citing their strong liquidity, capital adequacy ratios and improving profitability.
Despite the stable outlook, “all banks should exercise caution and risk control in the face of the QE exit and a tepid global recovery,” the commission said in a statement, adding that the international ratings agency earlier downgraded its outlook for Singapore and Hong Kong banks from “stable” to “negative.”
The regulator will continue to prod local lenders to increase provisions and coverage levels so they can pursue stable growth backed by sufficient capital, the statement said.
As of June 30, the nation’s banking industry had a bad loan average of 0.44 percent, a coverage ratio of 260.83 percent and Tier 1 provision at 0.93 percent, lower than the required 1 percent, the commission said.
The sector’s capital adequacy reading stood at 12.18 percent in late March and it posted an overall pre-tax income of NT$141.1 billion (US$4.7 billion) in the first half, the commission said, sharing Moody’s views of the industry being stable in terms of operations and profitability.
The ratings agency said the outlook for Taiwan’s banking system remains stable, as Taiwan’s economy is expected to improve in the next 12 to 18 months, allowing banks to maintain their credit metrics.
“While there are some pressure points in relation to asset quality, these negative factors will be offset by the banks’ ample liquidity, adequate capital positions and improved profitability,” Moody’s analyst Ginger Kao (高玟君) said in a report.
Should these pressures increase, the Taiwanese government is very willing and capable of stepping in and providing support, Kao said.
However, Moody’s voiced concern over Taiwanese banks’ asset quality in the face of shrinking corporate profits, which last year fell to their lowest level since the global financial crisis of 2008.
About 28 percent of listed companies had interest coverage ratios of below 100 percent last year, higher than 23 percent in 2011 and 15 percent in 2010, Kao said.
A prolonged period of weak interest coverage will expose the banks to asset quality deterioration should these firms fail to recover, Kao added.
Another credit risk lies in the growing imbalance in the local property market as real-estate price increases had spread beyond Greater Taipei to Taoyuan and Greater Kaohsiung last year, Kao said.
Rising household debt levels pose another unfavorable trend that can negatively impact banks’ operating environment after the gauge climbed to 86 percent of GDP last year, the second-highest level since the global financial crisis.
“Credit risks will be contained as long as interest rates remain low amid stable employment, but vulnerability to the first driver is mounting,” Kao said.
The central bank is expected to raise interest rates next year, taking a cue from its foreign peers amid better economic data.
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
RSS