Fitch Ratings has upgraded its assessment of the government’s propensity to support privately owned domestic systemically important banks (D-SIB) from “A-“ to “A” in light of regulatory resolve to maintain the stability of the financial system and a focus on achieving policy goals.
The government’s support was one of two key factors underlying the assessment, and the ratings upgrade takes into consideration Taiwan’s robust and predicable likelihood of support for D-SIBs, Fitch Ratings said.
The six banks with too-big-to-fail status are CTBC Bank (中信銀行), Taipei Fubon Commercial Bank (台北富邦銀行), Cathay United Bank (國泰世華銀行), Mega International Commercial Bank (兆豐銀行), Taiwan Cooperative Bank (合庫銀行) and First Commercial Bank (第一銀行).
Bank assets in Taiwan accounted for 292 percent of GDP in late 2021, higher than the ratio at most regional peers, Fitch Ratings said.
“The sovereign’s high financial flexibility helps account for the government’s ability to offer support,” it said.
Taiwan’s banking system remains predominantly funded by stable local-currency liabilities, making government support for bank liabilities — when necessary — less onerous, it said.
Taiwan’s high sovereign financial flexibility is also underpinned by its low government debt relative to the peer group, good market access and a large stock of foreign-currency reserves, it said.
However, authorities would not have the capacity to support all banks equally during a systemic crisis, it said, adding that the government might be forced to prioritize support for state-run banks and private too-big-to-fail banks over private banks without the status.
Systemic importance constitutes a key differentiator for support level, it said.
Fitch Ratings also upgraded its assessment of support for two non-D-SIB private banks — Taishin International Bank (台新銀行) and Bank SinoPac (永豐銀行) — from “BBB-“ to “BB+” on the grounds that each holds about 3.8 percent of the sector’s total deposits, giving them moderate systemic importance in a highly fragmented banking system.
The reassessment would not affect the two banks’ credit ratings, it said.
In related developments, Fitch Ratings said that outflows continued last year for Taiwan’s money market funds.
Total assets under management fell to NT$762 billion (US$24.88 billion) in January, it said.
The outflows were driven by low yields at local money market funds, widening yield gaps compared with US-dollar assets and the depreciation of the New Taiwan dollar against the greenback, it said.
The average yield bottomed out last year following four interest rate hikes and reached 0.59 percent in January, the highest since 2015, compared with 0.17 in the same month a year earlier, it said.
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