Taiwan’s Hua Nan’s asset quality to remain sound through 2025

Loans to SMEs and the property sector have improved, says Moody’s.

Taiwan’s Hua Nan Commercial Bank is expected to maintain a solid financial profile through 2025, according to Moody’s Ratings.

HNCB’s asset quality is expected to remain sound thanks to local economic conditions and the bank’s prudent loan underwriting practices.

“The agency foresees the asset quality of small and medium-size enterprises (SMEs) lending performing better than the historical average over the next 12 to 18 months,” Moody’s said in its latest ratings report on the bank, where it reaffirmed HNCB’s long-term and short-term foreign currency and local currency deposit ratings at A2/P-1.

The solid job market will also support the asset quality of other consumer-related loans. 

Moody’s particularly highlighted the bank's efforts to maintain its capitalization, balanced with its good loan growth, its strong asset quality, robust funding and liquidity, and good profitability.

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HNCB has also built up a substantial loan loss reserve buffer, with the loan loss reserve to impaired loans ratio rising to 290.3% as of the end of 2023, from 148.8% in the prior year.

Profitability will remain sound in 2024, with a return on tangible assets of around 0.5%. 

Net interest income will be bolstered by stronger loan growth, despite the likelihood that the net interest margin (NIM) will stay flat or contract mildly. 

“This is because the potential for loan pricing to increase is modest, while the cost of funding is expected to remain high for the majority of 2024,” Moody’s said, adding that HNCB is likely to maintain strong non-interest income, driven by good wealth management income and income related to its cross-currency swap business in 2024. 

Moody's Ratings predicts the bank's credit costs will remain low over the next 12-18 months.