Rebound of the local economy and bank profits expected to sustain through 2020 and into 2021
After witnessing economic contraction in the first two quarters of 2020, Taiwan’s economy rebounded strongly in the third quarter with a growth rate of 3.92%, the best in two years. The bounce back was due to its strong exports mainly of electronic products shipped to China and the US. The market expects the trend to continue into the fourth quarter. The overall economy is expected to grow 2.54% in 2020 according to Tsai Yu-tai, director of the Department of Statistics, up from 1.56% in August. “The upward revision was mainly attributed to better-than-expected exports as well as domestic investment,” Tsai said. As the effects of the pandemic wear off in 2021, the growth is expected to pick up and expand to 3.9%.
As of June 2020, the total assets of Taiwan’s 37 domestic banks reached TWD 53.88 trillion ($1.83 trillion) compared to TWD 52.06 trillion ($1.81 trillion) at the end of 2019. Nevertheless, asset quality was slightly impacted due to adverse impact of the COVID-19 with an average non-performing loan (NPL) ratio at 0.25% by the first half of 2020, which was three basis points higher than 0.22% by end of 2019. Meanwhile, the average NPL coverage ratio went down to 575.12% as of June 2020 with a decline of 12.17% points compared to the first quarter.
Profitability of the banking sector also weakened in the first half of 2020. The net income before tax of domestic banks decreased by 14.77% compared to the same period of the previous year to TWD 165.1 billion ($5.61 billion). Overall, the banking sector’s return on equity (ROE) and return on assets (ROA) further shrank to 8.27% and 0.62%, respectively, from 2019’s level of 9.49% and 0.7%.
In terms of capital ratio, the tier 1 capital ratio and capital adequacy ratio (CAR) registered at 11.98% and 14.04%, respectively. This is relatively the same compared to end of 2019 indicating a satisfied level of adequacy amid the uncertainty of the market. In the latest AB500 ranking, Bank of Taiwan, CTBC Bank, and Taiwan Cooperative Bank ranked among the top three by total assets with the overall ranking of 54, 64 and 72, respectively. In terms of profitability, Cathay United Bank had the leading position among the top 10 largest banks with ROE and ROA of 11.8% and 0.9% respectively. It was followed by E.SUN Commercial Bank and Taipei Fubon Commercial Bank. In December 2019, CTBC Bank, Cathay United Bank, Taipei Fubon Commercial Bank, Mega International Commercial Bank, and Taiwan Cooperative Bank were designated as domestic systemically important bank
(D-SIBs) in Taiwan with further adherence to a set of enhanced supervisory measures to ensure financial stability of the market. To increase the penetration of mobile payments in Taiwan, the central bank of Taiwan has set up the Common Platform for Electronic Payment Institutions (CPEPI) which allows banks and non-bank payment providers to connect and communicate across institutions. As of the end of 2019, the cumulative number of transactions conducted by scanning standardised quick response (QR) codes was about 14.82 million, amounting to TWD 66.9 billion ($2.27 billion). The number is expected to exceed TWD 90 billion ($3.06 billion) in 2020.
Although Taiwan has successfully contained the outbreak of COVID-19, the impact has not yet eased. Other than that, the rising tension between US and mainland China has caused further uncertainties upon Taiwan’s market. In 2020, Taiwan’s government launched a series of measures related to relief, revitalisation, and financing totalling TWD 1.05 trillion ($3.57 blion). The initiative supported the rebound of Taiwan’s economic growth in the second half of 2020 and the effect is expected to continue into 2021. Given the continuous rise of demand for its electronic products outside of the island, exports are expected to recover in 2021.