Taiwan's banking system outlook still stable, to improve: Moody's
CNATAIPEI -- Moody's Investors Service said on Friday that the outlook for Taiwan's banking system remains stable because of the likelihood that the country's economy will improve.
August 24, 2013, 12:00 am TWN
“The stable outlook reflects our expectation that Taiwan's economy will improve in the next 12 to 18 months, allowing the banks to maintain their credit metrics,” Moody's analyst Ginger Kao wrote in a report on Taiwan's banking system outlook.
According to Moody's, Taiwan's gross domestic product will grow 2.5-3 percent in 2013 and 3-4 percent in 2014, compared with 1.3-percent growth seen in 2012.
“While there are some pressure points in relation to asset quality, these negative factors will be offset by the banks' ample liquidity, adequate capital positions and improved profitability,” Kao said.
The ratings agency also expected Taiwan's government to have the capacity and the willingness to provide the banking sector with support at a time when a stress situation remains.
Moody's cautioned, however, that if global demand remains weak, the domestic banking sector will face an increased risk because banks in Taiwan have high exposure to local exporters and their asset quality is closely correlated to the country's export orders.
Another potential risk, Moody's said, is the growing imbalance in the domestic property market between high housing prices and stagnant household incomes, especially as high real estate prices spread from the greater Taipei area to places like Taoyuan and Kaohsiung.
Rising household debt, which reached 86 percent of Taiwan's GDP in 2012, also presents a threat, Moody's said, but the risk will be contained as long as interest rates remain low and the job market remains stable.