Taiwanese banks face potential revenue drop in 2025

Fee income will be supported by loan growth and reshoring activities.

Taiwan’s banking sector faces a potential drop in revenue in 2025 on the back of lower foreign exchange (FX) swap gains, reports Fitch Ratings.

However, the sector’s underlying profitability is expected to remain stable, with steady loan growth and fee income anticipated to offset the reduced FX swap gains.

“The growth in fee income is likely to moderate but remain supported by steady loan growth and reshoring activities,” Fitch Ratings said in the report, “Taiwan Banks: Lending and Fee Income Support Core Profitability” published on 3 October.

“This, along with moderate increases in credit costs, should reinforce banks’ stable core profitability as well as capitalisation levels amid the adoption of Basel III final reforms in 2025,” Fitch added.

Taiwanese banks also face a modest increase in credit costs next year. 

Net interest income is also expected to be flat or slightly higher in the near-term, with Fitch noting that the rate cuts in the US and Taiwan could exert pressure on banks’ asset yields. 

On a positive note, the rate cuts may also raise offshore lending demand and lower the overall funding costs.

Fitch expects net interest income to be flat to modestly higher in the near term, as likely rate cuts in the US and Taiwan could exert pressure on banks’ asset yields but would also raise offshore lending demand and lower the overall funding costs.