Fitch raises banks’ outlook after tariff deal

SIGNS OF STABILITY: With US tariff risks to GDP subsiding, reliable economic conditions are expected to reinforce the bank operating environment, Fitch said Fitch Ratings has upgraded the outlook for Taiwan’s banking sector to “neutral” from “deteriorating,” citing a tariff agreement with the US that has reduced uncertainty in Taiwan’s macroeconomic environment and stabilized financial performance.The US on Jan. 15 agreed to lower tariffs on Taiwanese goods from 20 percent to 15 percent, without stacking them on existing most-favored-nation rates, placing Taiwan on equal footing with major competitors such as Japan, South Korea and the EU.The deal also grants Taiwan-made semiconductors and related products most-favorable-nation treatment under Section 232 of the US Trade Expansion Act.Under the agreement, Taiwanese semiconductor, electronics manufacturing service, artificial intelligence and energy companies would invest US$250 billion in the US based on their own plans, while the Taiwanese government would provide US$250 billion in credit guarantees to facilitate the investments.“US tariff-related risks to Taiwan’s GDP growth have subsided following the trade agreement, offering relief for Taiwan’s export-oriented economy,” Fitch said in a statement on Wednesday last week. “We expect more stable economic conditions to reinforce Taiwan’s bank operating environment, with sector asset quality and profitability likely to be stronger than we previously forecast,” it added.Fitch expects the Taiwanese banking sector to maintain an impaired loan ratio below 1 percent, compared with the 1.2 percent it previously forecast, the statement said.The ratio is estimated to stand at 0.7-0.8 percent last year.The rating agency also expects the banking sector’s operating profit-to-risk-weighted-assets ratio to remain stable at about 1.5 percent this year, exceeding its earlier forecast of 1.2 percent, supported by robust lending income and fees, as well as lower credit costs.The banking sector is forecast to report loan growth in the high single digits this year, an upgrade from Fitch’s previous estimate of about 5 percent, driven by increased overseas investment and corporate credit demand, it said.Market sentiment is also expected to improve, supporting wealth management fees and the sector’s overall bottom line, Fitch added.