Strong SME lending buoys Taiwanese banks' growth prospects

Loans to the SME segment accounted for almost a third of total system loans.

Taiwanese banks are expected to have another steady year ahead as robust lending to small and medium enterprises (SMEs) and secured personal loans will sustain the banking sector’s growth trajectory for the year ahead, according to credit rating agency Fitch.

Loan growth is expected to clock in at a stable 4% as the growth of SME loans continue to surge faster than other lending segments to account for almost a third (29%) of total system loans.

Also read: Loans by Taiwanese banks in China down to $57.49b in Q1

The 90-day bad loan ratios for SME and offshore lending also remained low at below 0.5% each, compared with 0.3% for total loans, indicating a positive credit-cost environment. A recovery in the housing market is also set to spur demand for mortgages in the near-term, Fitch added.

The number of Taiwanese bank branches have also plunged to record lows after hitting 3,417 in 2017 as the country flushes out underperforming segments to streamline operations and move towards digital platforms. 

The banking system has ample liquidity in both New Taiwan dollar and US dollar terms, so local banks would be likely to expand foreign currency loans given that the loan to deposit ratio in US dollar terms remains less than 60%. However, growing competition from foreign banks is likely to bear pressure on the profit margins of banks looking to gain greater market share.