Banks’ liquidity tightening but still ample: FSC chair
By Crystal Hsu / Staff reporter
Taiwan’s banks are facing tighter liquidity conditions as economic growth and a booming stock market fuel demand for funds. but the overall supply of money remains ample, Financial Supervisory Commission (FSC) Chairman Peng Jin-lung (彭金隆) said yesterday,
Banks’ liquidity coverage ratios (LCRs) have declined from a year earlier, leaving them with less room to absorb unexpected cash outflows, Peng said during a meeting of the legislature’s Finance Committee.
Taiwan’s financial markets enjoyed abundant liquidity for years, with banks holding ample funds. However, demand for money has increased since last year alongside rapid economic growth and a rally in local stocks, putting pressure on banks’ liquidity, Peng said.
Financial Supervisory Commission Chairman Peng Jin-lung speaks at a meeting of the legislature’s Finance Committee in Taipei yesterday.
Photo: CNA
Banks’ lending decisions are shaped by their willingness to extend credit, rising personal loans and capital adequacy requirements, he said.
Peng said that Taiwan does not face an outright fund shortage, echoing the central bank’s repeated assurances that the issue lies in how money is distributed rather than in the total amount available.
The sector has deposits of almost NT$70 trillion (US$2.16 trillion), compared with about NT$50 trillion in loans, leaving a gap of almost NT$20 trillion.
However, banks cannot lend out all their deposits, as they must maintain reserves at the central bank and retain sufficient liquidity to meet deposit withdrawals and other funding needs, Peng said. The gap between deposits and loans does not represent money readily available for additional lending, he said.
The LCR measures whether a bank has enough liquid assets, such as cash and government bonds, to cover its projected cash outflows over a 30-day stress period. The statutory minimum is 100 percent.
FSC data showed that Taiwan’s domestic banks had an average LCR of 120.57 percent in late August, down 8.22 percentage points from 128.79 percent a year earlier. Although the ratio remained above the regulatory minimum, the decline indicates that banks had a smaller liquidity buffer from a year earlier.
The FSC dismissed calls to curb short selling because of stock market slides, saying the authorities should let markets reflect market information unless trading becomes irrational or market mechanisms break down.
Peng said regulators worldwide shared the same principle of respecting market forces. Markets need buyers and sellers, and investors should be given time to digest market information, he said.
The selloff reflects global developments rather than a problem unique to Taiwan, Peng said, adding that regulators should avoid intervention as long as market information remains undistorted.
He added that strong corporate revenue and earnings in the first nine months of the year should underpin Taiwan’s stock market.
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