Can Taiwanese banks maintain stable financial footing?

Lenders face stiff competition and modest lending demand.

Taiwan’s steady economic growth bodes well for its banks who can expect profitability to hold steady in the next two years with return on average assets poised to settle at around 0.6% by 2018 and 2019 compared with 0.53% in 2017, according to Moody’s Investors Service.

Although margins on domestic lending will remain under pressure from stiff competition and soft loan demand, banks can cash in on wider profit margins from foreign currency-denominated lending.

Moody’s also expects Taiwan’s system loan growth to rise from 3.6% in 2017 to around 5% in the next two years as lending to small and medium enterprises surge.

Also read: Taiwanese banks poised to break $6.5b year-end lending target

Asset performance is also likely to hold steady and credit costs will stay low although gains in operating efficiency may be offset by higher tech investments.

"Steady economic growth and strong corporate balance sheets will support  the asset quality of banks in Taiwan," Sonny Hsu, a Moody's vice president and senior credit officer said in a statement.

Debt repayments will also remain manageable for most borrowers as interest rates remain low and the region’s stable economic performance similarly props up the asset performance of Taiwanese banks’ overseas lending portfolios.

“[L]iquidity conditions will remain ample, because of the central bank's accommodative monetary policy,” added Moody’s.

Photo from Luke Ma from Taipei, Taiwan ROC - Taipei skyline, Taiwan, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=33735853