Taiwan’s plan to implement the final Basel III reforms in January next year would have a very limited impact on local banks’ capitalization and asset growth, since no banks are using the Internal Rating-Based (IRB) approach in calculating credit risk, Fitch Ratings said in a report on Thursday.
The final Basel III reforms include revised credit risk approaches, a standardized operational risk approach, a credit valuation adjustment framework, leverage ratio revisions and an aggregate output floor.
“As such, the output floor under Basel III would have no impact on banks using the standardized approach for calculating credit risk,” the agency said, adding that it does not expect large deviations in the banks’ capital calculation given that Taiwan’s risk weights are conservative compared with peers.
Photo: Reuters
The new capital rules are to lower the average common equity Tier 1 ratio by less than 20 basis points, it said.
Fitch said it is looking at stable core profitability, solid profit retention and moderate growth in risk-weighted assets to sustain capitalization.
The banks in Taiwan are well-positioned to adopt the new capital rules, including the higher capital surcharge (minimum Tier ratio of 11.0 percent) for domestic systemically important banks (D-SIB) by the end of next year, it said.
Taiwan’s six DSIBs have already met or are on track to meet the minimum regulatory capital ratio.
Banks with assets of more than NT$2.5 trillion (US$78.31 billion) may seek approval to use the more complicated IRB approach, with full implementation likely by 2026, Fitch said.
The IRB approach allows banks to model their own inputs for calculating risk-weighted assets from credit exposures to retail, corporate, financial institutions and sovereign borrowers, subject to supervisory approval.
IRB adoptions would be limited initially to DSIBs and that their operating profit/risk-weighted assets and Tier 1 ratios would improve modestly as they leverage on the capital uplift to expand their lending capacity, Fitch said.
However, their financial metrics would remain below those of regional peers in developed markets, in light of persistent competition and thin margins in Taiwan’s highly fragmented banking sector, it said.
Taiwan’s bank capital regime would remain more conservative relative to global practices, although risk-weight calculations post-IRB adoption should narrow relative to regional peers, it added.
Taiwan excludes property revaluation and other comprehensive income valuation gains from Tier 1 capital and imposes higher risk weights for select property exposures to contain concentration risk, Fitch said, adding that the sector’s non-performing loan ratio has stayed at very low levels for the past decade.
However, excessive growth in pursuit of yield overseas and high dividend payouts could pressure the banks’ viability ratings, Fitch said.
Still, the country’s stable operating environment would help sustain the banks’ financial metrics regardless of Basel III implementation, it added.
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
‘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
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