Fitch Ratings, one of the world's leading rating agencies, has forecast that Taiwan's gross domestic product (GDP) will grow at a pace of 1.5 percent to 2 percent over the next two years.
In a statement released on Sunday, the rating agency said that GDP growth in Taiwan is expected to speed up in 2017-2018 from an estimated 1 percent in 2016.
The forecast is in line with the expectations of Taiwan's government, which has said the local economy will benefit from a recovery in global demand boosting exports, although Fitch remained more cautious about Taiwan's economic growth in 2016.
In late November, the Directorate General of Budget, Accounting and Statistics (DGBAS) forecast that Taiwan's GDP will grow 1.87 percent in 2017, compared with an estimated 1.35 percent increase in 2016. The DGBAS has not yet provided a GDP forecast for 2018.
As a result of accelerating economic growth, loan demand in Taiwan is expected to pick up and interest rate margins in the local banking industry to improve slightly.
Fitch said the return on assets in the local banking system will remain generally stable at a level of around 0.6 percent in 2017, a small increase on its estimated 0.57 percent for 2016.
However, Fitch said that Taiwan's banking sector still faces many challenges which are weighing on financial institutions across Asia, such as low interest rates and a difficult economic climate.
Nevertheless, Fitch said the outlook for the Taiwan banking sector remains stable.
"Risk buffers have been bolstered in recent years, while exposure to China and the property and technology sectors has fallen since 2015," Fitch said. "Taiwan is one of just four Fitch-rated banking sectors in Asia where we have a stable sector outlook -- the other 13 are on negative outlook."
In addition to Taiwan, the other three countries where Fitch has a stable outlook are South Korea, the Philippines and Vietnam, according to the ratings agency.
In terms of efforts made by Taiwan's banking sector to reduce high risk exposure, lending to China accounted for 6.2 percent of total assets in the second quarter of 2016, down from a peak of 7.9 percent at the end of 2014.
The reduced exposure to China "should help to limit the possibility of risks associated with China's slowdown and deleveraging spilling over into Taiwan," Fitch said. According to Fitch, the exposure of Singapore and Hong Kong to China accounts for 12.5 percent and 28 percent of banking sector assets, respectively.
Source: Focus Taiwan News Channel