China Credit Rating Outlook: Financial Sector's 2026 Credit Trend Stable; Securities and Life Insurance Thrive, Leasing Struggles

China Credit Rating released its 2026 mid-year credit outlook for Taiwan today (9th), indicating that the financial sector as a whole is experiencing strong profitability. The securities industry has seen a surge in brokerage income driven by active stock trading and IPOs, with ROAA projected to rise to 4.6%, though leverage and market risks require close monitoring. Life insurers expect total premiums to grow by around 10%, but foreign exchange risks remain elevated. Bank lending is projected to grow by 9%, property and casualty insurers remain robust, while the leasing sector suffers from weak traditional industries and China's sluggish market, with ROAA at only 1.5%, making it the weakest performer.

Tsai Yi-chun, Deputy Chief Analyst of the Financial Services Rating Division, stated that Taiwan's financial sector is benefiting from strong export performance and a vibrant domestic stock market. However, profitability divergence among sub-sectors is widening, particularly for leasing firms closely tied to traditional industries, which face mounting credit asset pressures.

Taiwan's stock market has entered a super bull phase, with the index soaring from 30,000 points at the beginning of the year to 48,000 points. The securities industry has benefited from record-high trading volumes and IPO sizes, leading to significant growth in brokerage and underwriting fees. ROAA for 2026 is expected to range between 3.6% and 4.6%, above historical averages.

Tsai cautioned that while brokerages are currently profitable, market volatility has increased. With margin lending and unsecured loans expanding rapidly, some firms' leverage has reached upper limits, raising credit and market risks and putting pressure on capital adequacy. Brokerages must strengthen risk management while pursuing profits.

For the life insurance sector, 2026 marks a transition year with stable credit trends. Driven by continued momentum in health and variable life insurance, total premiums are expected to grow 8% to 10%. While new accounting standards and foreign exchange valuation rules have helped stabilize reported earnings, underlying foreign exchange risks remain high.

Tsai noted that insurers' FX hedging ratios have declined, and the new foreign exchange reserve system has effectively eased currency volatility pressures. However, in the long term, companies must monitor the accumulation of foreign exchange reserves. In an extreme scenario where the New Taiwan Dollar sharply appreciates to 28 per USD, reserves could be depleted instantly, leaving insurers vulnerable to further appreciation. Life insurers should proactively manage FX risks, maintain sound asset-liability management, and prioritize long-term capital resilience over short-term profitability.

For banks, 2026 profits are expected to remain stable. Strong AI demand and GDP growth are driving robust foreign currency lending, with overall loan growth reaching 8% to 9%. Pre-tax ROAA is projected at around 0.8%, above historical averages. Mortgage lending remains cautious.

For property and casualty insurers, Tsai highlighted that strong capital strength and sound risk management continue to support credit metrics. With large project renewals injecting premium income, written premiums are expected to grow at a high single-digit rate, with capital and profitability remaining robust.

The leasing sector, however, is relatively weak. Its primary clients are small and medium-sized non-tech enterprises affected by weak traditional industry conditions. While asset quality in new projects is gradually improving, overseas markets—mainly in China—face weak domestic demand and overcapacity, leading to persistently high delinquency rates. As a result, 2026 profits remain low, with an industry average ROAA of 1.5%.

Hsiao Li-ming, Deputy General Manager of the Corporate Rating Division, pointed out that non-tech industries are recovering slowly, facing structural pressures from weak Chinese domestic demand and commodity overcapacity. The petrochemical and chemical sectors saw temporary profit margin rebounds in the first half due to Middle East war-related transport disruptions and low-cost inventory, but new low-cost capacity from Chinese manufacturers will continue to squeeze Taiwanese firms' margins in the second half.

The steel industry also faces structural overcapacity issues in China, maintaining a negative outlook. The Chinese auto market has seen significant declines, while Taiwan's new car market is expected to see slight year-on-year growth due to government cargo tax reductions and new model launches. However, intense competition in China continues to pressure revenue and profits for Taiwanese automakers and tire manufacturers with deep mainland exposure. China Credit Rating forecasts that the performance gap between tech and non-tech traditional industries will continue to widen over the next one to two years.