Fitch Looks at Taiwan: Moderate Correction in Housing Market, Double-Digit Loan Growth Fitch Optimistic About Taiwan Banks' Asset Stability

Fitch Ratings held a press conference today (21st) pointing out that, benefiting from the strong global demand for semiconductors and AI-related products, coupled with the easing of US tariff pressure, Taiwan's economy and banking industry have demonstrated high credit resilience this year. Fitch Ratings has maintained a neutral outlook for Taiwan's banking industry since the beginning of this year and expects the impact of the Iranian conflict to remain controllable. With the bright economic growth, the bank's loan growth rate is expected to reach 10% this year, surpassing last year's 6% level.

Jonathan Cornish, Managing Director and Head of Financial Institutions Ratings for Asia-Pacific at Fitch Ratings, stated that Taiwan's GDP growth forecasts for this year and next year have been raised to 9.4% and 4.8% respectively. This growth performance is among the top in the Asia-Pacific market. Bank loan growth is mainly driven by strong economic momentum and supported by healthy corporate loans and increased demand for overseas borrowing. In contrast, loan growth related to real estate is relatively moderate, mainly due to regulatory controls, as well as recent moderate corrections in housing prices and a slowdown in residential transaction volumes.

In terms of asset quality, the bank's non-performing loan ratio may see a slight increase, mainly from overseas loans, but it will remain at a low level over the next two years. Under the base case scenario, the ratio is expected to be 0.8% this year, higher than the 0.7% at the end of last year, and below 1% under the adverse scenario. Taiwan's non-performing loan ratio is still one of the lowest in the Asia-Pacific region. With factors such as consistent risk preference and a moderate unemployment rate, overall asset quality is expected to remain stable, and core profitability will also grow steadily.

Looking at other markets in the Asia-Pacific region, the overall outlook for the banking industry is mostly neutral, including China and Hong Kong, which have had their outlook adjusted from negative to neutral in mid-year. However, the outlook for Thailand, the Philippines, and Sri Lanka is negative, mainly due to facing economic weakness or the greatest negative impact from the Middle East conflict. The only market with an improved outlook is Japan, as gradually rising interest rates are supporting improved profitability. Most Asia-Pacific banks have low direct exposure to the Middle East region, and the related pressures are mainly of an indirect nature.

In terms of the outlook for Taiwan's banking system ratings, the overall outlook is stable. However, mergers and acquisitions have turned the outlook for ratings of Taishin International Bank and E.SUN Commercial Bank to positive, as their market position is expected to further expand. After the completion of the merger, if their market share or systemic importance significantly increases, for example, through strengthened cooperation with other non-bank affiliated companies under their respective financial holding groups, the government's willingness to support may increase, and there may be room for an upgrade in their government support ratings.