Bangkok--16 Apr--Standard & Poor's
Standard & Poor's Ratings Services said today it revised its outlook on the long-term credit ratings on Taiwan to negative from stable. At the same time, Standard & Poor's also affirmed its long- and short-term credit ratings at 'AA-' and 'A-1+', respectively.
"The negative outlook reflects our expectation of a marked deterioration in the government's fiscal position in the next two to three years and this could weaken its credit fundamentals below levels appropriate for the 'AA' rating category," said Standard & Poor's credit analyst Kim Eng Tan.
The ratings reflect a balance of our views of Taiwan's exceptionally robust external position with a relatively high government debt burden and weak banking system for an economy at this stage of its development, Mr. Tan added.
Taiwan's strong net external asset position supports its creditworthiness and mitigates weaknesses elsewhere in its credit quality. Taiwan's foreign reserves, expected to remain above US$300 billion in 2009, rank among the largest in the world. Consistent current account surpluses, averaging about 7.5% of GDP in recent years, have helped keep domestic interest rates low. Low real interest rates have, in turn, supported domestic demand, eased the government's interest burden, and reduced Taiwanese banks' cost of funds.
Taiwan's dynamic and entrepreneurial information technology firms are another source of credit strength. The global economic slowdown will see many reporting weak financial performance in the near future. However, these companies are highly competitive and are expected to contribute importantly to Taiwan's economic recovery when global economic conditions improve.
An elevated debt burden remains the Taiwanese government's main credit weakness. General government debt, forecast at 142% of revenue at the end of 2009, is among the highest in the 'AA' category. Moreover, off-budget subsidies have led to losses at state-owned enterprises and the National Health Insurance fund. If left unaddressed, accumulated losses will grow and the affected entities may require government financial support in the medium term.
"Taiwan's fragmented banking sector, with its comparatively low profitability, is another weak point in its credit fundamentals," Mr. Tan said. Among economies at similar levels of development, the Taiwanese banking system is considered less healthy than most. Standard & Poor's estimates the contingent liability arising from financial sector difficulties in a reasonable worst-case economic downturn could exceed 48% of GDP. This is well above the level estimated for the median 'AA' government.
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.
Media Contact:
David Wargin, New York (1) 212.438.1579, [email protected]
Analyst Contacts:
KimEng Tan, Singapore (65) 6239.6350
William Hess, Hong Kong (852) 2533.3595