Combined deposits at local banks grew to a record NT$52.9 trillion (US$1.73 trillion) as of the end of February, as high interest rates encouraged people and businesses to deposit funds, Financial Supervisory Commission data showed on Tuesday.
Meanwhile, growth in combined lending slowed, putting a drag on banks’ profit momentum, the data showed.
Combined deposits rose by NT$332.5 billion in February, more than the average monthly increase of NT$308.3 billion last year, as life insurers, companies in the electrics sector and state-run corporations moved more funds into their savings accounts, the commission said, attributing the trend to the central bank hiking rates in five quarterly meetings in a row.
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The central bank’s benchmark rate has increased by a total of 75 basis points since March last year, enticing people and businesses to shift to deposits as banks followed suit in raising interest rates, it said.
However, the rate increases also curbed the growth in lending, with local banks reporting a monthly increase of NT$82.2 billion in loans in February, compared with an average monthly increase of NT$248.3 billion last year, commission data showed.
Outstanding lending to private companies fell by NT$85.2 billion in February, as some corporate clients repaid their debts in advance to avoid higher interest payments and businesses became less interested in taking new loans, the commission said.
Local banks’ lending to corporate clients for investment purposes fell for the second consecutive month, indicating that companies remained conservative, as Taiwan’s economic outlook appeared clouded, the commission said.
The outlook might improve in the second quarter, it added.
In contrast, company loans for working capital increased in February, suggesting that local firms have demand for short-term funds, the commission said.
As deposits grew much more than lending, local banks’ aggregate loan-to-deposit ratio fell to 69.5 percent at the end of February, the second-lowest after 69.23 percent in December 2021, the commission said.
The ratio is commonly used to assess a bank’s liquidity by comparing its total loans with its total deposits, with a low ratio meaning banks have difficulties using account holders’ money to generate interest income.
However, local banks reported a combined pretax profit of NT$82.32 billion for the first two months of this year, the highest for the same period, as banks’ investment gains increased.
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