Taiwan’s banking sector remains anchored despite recent spike in COVID infection

Key indicators all point to an impressive level of stability amongst local banks in Taiwan and we may have the general economic resilience to thank for that. Experts also expect this trend of stability in financial profiles among Taiwanese banks will weather the spike in the nation’s COVID-19 infections and even last well into 2022.

In a report by Fitch analysts Cherry Huang and Sophia Chen, they stated: “we expect the impact on economic growth to be contained, but the outbreak may offset the upside risk to our forecast if it starts to meaningfully affect business activities and manufacturing – and ultimately exports, domestic consumption and investment.”

“we expect the impact on economic growth to be contained, but the outbreak may offset the upside risk to our forecast if it starts to meaningfully affect business activities and manufacturing – and ultimately exports, domestic consumption and investment.”

Fitch analysts Cherry Huang and Sophia Chen

As relief debts are reined in across the globe, asset-quality deterioration is imminent, yet Fitch experts believe that it is a situation that Taiwan’s resilience and an expected rise in the property market can help the nation manage.

The forecasts also show that gross domestic product (GDP) are on course to grow by 4.5% in 2021 before dropping slightly to 3.6% in 2022, which is still a notable difference compared to 2020’s 3.1%. Taiwan has seen a steady trend in its exports between January and April and that has caused upside risks to the country’s full-year growth forecast.

The health of corporate profits is expected to get better, while unemployment rates drop. This will in turn reduce operational pressures on banks’ asset quality, profitability and capitalisation. This is the key reason why Fitch Ratings reviewed their outlook of banks, namely CTBC Bank, King’s Town Bank, Sunny Bank and Taipei Star Bank to stable from negative last April.

Fitch now holds a stable outlook for all Taiwanese banks, also partly spurred by their credit profiles and the prospects of government support.