The level of corporate and household debt in Taiwan remains manageable, despite an income shock amid the COVID-19 pandemic and mounting stress in global financial markets, DBS Bank Ltd (星展銀行) said in a report last week.
The Singapore-based bank published its report as part of its latest assessment of the potential credit risks in Taiwan and South Korea.
The analysis said that South Korea’s corporate and household sectors, especially small and medium-sized enterprises (SMEs) in the service industry, are highly leveraged and should be particularly vulnerable.
In Taiwan, the corporate debt situation is not particularly worrisome, DBS said, adding that banks’ loans to the corporate sector increased 4.8 percent year-on-year last year, slowing from an increase of 5.6 percent in 2018, while SME loans also grew at a slower pace of 5.6 percent last year, compared with a rise of 6.4 percent the previous year.
Given healthy debt-to-asset ratios and strong interest coverage ratios for listed companies, the overall debt repayment capacity of Taiwanese firms is relatively well positioned, it said.
“The overall debt repayment capacity of Taiwanese companies is strong, if compared with South Korean counterparts. Admittedly, it cannot be ruled out that credit risks in certain SMEs and sectors will rise substantially due to the COVID-19-related economic slump,” DBS economist Ma Tieying (馬鐵英) wrote in the report
Household debt expansion is a greater source of concern for Taiwan than corporate debt as incomes decline, but the household sector’s strong savings position should be a buffer, the report said.
Consumer loans last year rose 4.8 percent year-on-year, accelerating from a rise of 4.2 percent in 2018, while housing loans quickened to 5.4 percent growth last year from 4.8 percent a year earlier, it said.
The ratios of household debt to nominal GDP and household borrowings to disposable income were also at record levels, the report said, citing central bank statistics.
The household debt-to-asset ratio remained low and stable, while liquid assets, such as currency and deposits, accounted for as much as 40 percent of households’ total assets, it said.
“By and large, Taiwan’s indebted household sector is susceptible to the job losses and income declines caused by COVID-19. That said, its strong savings position should help to cushion the impact of income shocks and mitigate the risk of debt defaults,” Ma wrote.
Meanwhile, Taiwanese financial institutions’ asset quality has remained favorable, the report said, citing data that showed Taiwanese banks’ average non-performing loan ratio was a mere 0.2 percent last year, while it was even lower among credit cooperatives at 0.1 percent.
Total capital adequacy ratio among banks, which measures their financial strength against risks, improved to 14.07 percent at the end of last year, the second-highest on record after the 14.18 percent registered in 2017, Financial Supervisory Commission statistics showed.
“The pressure from potential credit defaults should be manageable for Taiwanese financial institutions as a whole,” Ma wrote.
UNCERTAINTY: Innolux activated a stringent supply chain management mechanism, as it did during the COVID-19 pandemic, to ensure optimal inventory levels for customers Flat-panel display makers AUO Corp (友達) and Innolux Corp (群創) yesterday said that about 12 to 20 percent of their display business is at risk of potential US tariffs and that they would relocate production or shipment destinations to mitigate the levies’ effects. US tariffs would have a direct impact of US$200 million on AUO’s revenue, company chairman Paul Peng (彭雙浪) told reporters on the sidelines of the Touch Taiwan trade show in Taipei yesterday. That would make up about 12 percent of the company’s overall revenue. To cope with the tariff uncertainty, AUO plans to allocate its production to manufacturing facilities in
Taiwan will prioritize the development of silicon photonics by taking advantage of its strength in the semiconductor industry to build another shield to protect the local economy, National Development Council (NDC) Minister Paul Liu (劉鏡清) said yesterday. Speaking at a meeting of the legislature’s Economics Committee, Liu said Taiwan already has the artificial intelligence (AI) industry as a shield, after the semiconductor industry, to safeguard the country, and is looking at new unique fields to build more economic shields. While Taiwan will further strengthen its existing shields, over the longer term, the country is determined to focus on such potential segments as
Chizuko Kimura has become the first female sushi chef in the world to win a Michelin star, fulfilling a promise she made to her dying husband to continue his legacy. The 54-year-old Japanese chef regained the Michelin star her late husband, Shunei Kimura, won three years ago for their Sushi Shunei restaurant in Paris. For Shunei Kimura, the star was a dream come true. However, the joy was short-lived. He died from cancer just three months later in June 2022. He was 65. The following year, the restaurant in the heart of Montmartre lost its star rating. Chizuko Kimura insisted that the new star is still down
While China’s leaders use their economic and political might to fight US President Donald Trump’s trade war “to the end,” its army of social media soldiers are embarking on a more humorous campaign online. Trump’s tariff blitz has seen Washington and Beijing impose eye-watering duties on imports from the other, fanning a standoff between the economic superpowers that has sparked global recession fears and sent markets into a tailspin. Trump says his policy is a response to years of being “ripped off” by other countries and aims to bring manufacturing to the US, forcing companies to employ US workers. However, China’s online warriors
RSS