The Financial Supervisory Commission (FSC) yesterday said that it is drafting a comprehensive stress test to gauge domestic banks’ ability to withstand wide swings in variables affecting risk exposure.
Unlike previous tests evaluating banks’ resilience against specific risk exposures, the latest test is to encompass macroeconomic factors such as the nation’s economic growth rate, jobless rate, the value of the New Taiwan dollar and interest rates.
Domestic banks have passed a number of stress tests simulating inclement conditions in specific segments, and have met the commission’s requirements for financial ratios.
In 2010, banks demonstrated that they were able to weather slowing GDP growth, rising unemployment and a cooling housing market and had managed to contain impacts to their financial conditions at the range required by the commission.
Stress tests on banks’ exposure to domestic home loans and loans by their China-based lending operations were carried out in 2014 and last year respectively.
The nation’s banks passed both tests, showing that they were able to contain impacts to their capital adequacy and tier 1 ratios at a level deemed manageable by the commission.
A Tier 1 capital ratio measures a bank’s financial strength based on the sum of its core equity capital and total risk-weighted assets, while capital adequacy determines the financial strength of a company.
The commission is reviewing the outcome of a stress test on banks’ exposure to yuan-linked target redemption forward (TRF) contracts that was conducted last month.
While analysts are in agreement that the worst of the concerns about TRF contracts have passed, as a majority of the contracts expired as of the end of last month, they said unexpected swings in the yuan’s strength could still cause significant losses for banks.
The FSC’s TRF stress test simulating a weakened yuan of 6.8 per US dollar was deemed inadequate, as the yuan is expected to fall to 7.5 against the greenback by the end of this year, Daiwa Capital Markets analyst Christie Chien (簡民惠) said in a client note last week.
Since the Chinese central bank devalued the yuan in August last year, TRFs have caused widespread losses for investors, while banks are facing rising exposure to the instrument’s refundable deposit against potential defaults by their clients.
Banks have also lost highly profitable items in their product mix as sentiments toward the troubled derivative soured.
PROBE
In related news, the commission said that it has asked its Financial Examination Bureau to probe allegations by New Power Party Legislator Huang Kuo-chang (黃國昌) that a number of banks assisted their clients to produce false financial statements and set up offshore accounts in a bid to promote TRF sales.
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
‘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
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
RSS