Taiwan’s artificial intelligence (AI) boom is reshaping the financial sector, rewarding firms tied to capital markets and corporate expansion while exposing weaker players to the fallout from China’s slowdown and persistent weakness in traditional industries.

The gap is expected to widen through this year as AI investment continues to fuel stock-market activity, corporate lending and insurance demand, Taiwan Ratings Corp (中華信評) said in its midyear credit outlook.

Meanwhile, leasing companies serving traditional industries are likely to face growing pressure as weak borrowing demand and excess capacity weigh on business conditions, the local unit of S&P Global Ratings said.

“Taiwan’s financial sector remains on a strong earnings trajectory this year, supported by robust exports and an active equity market,” Taiwan Ratings credit analyst Effie Tsai (蔡怡君) said at a news conference on Thursday. “However, the earnings gap among subsectors is becoming increasingly pronounced.”

Securities firms are expected to be the biggest beneficiaries of the AI-fueled rally. Taiwan’s benchmark stock index has climbed above 45,000 points, driving record trading volumes and a surge in initial public offerings, Tsai said.

The market boom has translated into sharply higher brokerage commissions and underwriting fees, pushing the industry’s return on average assets (ROAA) to a projected range of 3.6 percent to 4.6 percent this year, far above historical averages.

However, the rapid growth is also creating new risks. Rising margin financing and unsecured lending have pushed leverage levels at some brokerages close to regulatory limits, increasing their exposure to market swings and putting pressure on capital buffers, the analyst said.

Banks are also benefiting from Taiwan’s AI-led economic expansion. Strong demand for corporate foreign-currency loans is expected to drive overall loan growth of 8 to 9 percent this year, while sector-wide ROAA is forecast at about 0.8 percent, above long-term averages, Tsai said.

However, mortgage lending is expected to remain subdued as banks stay cautious about risks in the property market and support efforts to cool down the housing market.

Life insurers are also seeing stronger growth, with Taiwan Ratings forecasting premium income to rise 8 to 10 percent this year, supported by demand for health insurance and participating policies.

New accounting standards and revised foreign-exchange valuation reserve rules should provide greater earnings stability, but currency exposure remains a key vulnerability.

Tsai said insurers’ hedging ratios have declined, while the new reserve mechanism has improved their ability to absorb exchange-rate fluctuations. Still, a sharp appreciation of the New Taiwan dollar could significantly erode foreign-exchange valuation reserves and weaken insurers’ capital strength.

Property and casualty insurers are expected to remain resilient, backed by strong capitalization, disciplined risk management and premium growth from large project renewals.

By contrast, leasing companies remain the weakest link in Taiwan’s financial sector. Their customer base is heavily concentrated among small and medium-sized non-technology companies, whose financing demand has weakened amid sluggish conditions.

China operations continue to face elevated delinquency rates due to weak domestic demand and excess capacity, leaving leasing companies with an average ROAA of only about 1.5 percent, Tsai said.