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Financial stocks fall in wake of interest rate cut

Financial stocks fall in wake of interest rate cut

Taipei, Sept. 25 (CNA) The local financial sector came under pressure Friday morning after the central bank decided a day earlier to cut its key interest rates by 0.125 percentage points, dealers said. The interest rate cut has raised concerns about a narrowing interest rate spread in the banking sector, which may adversely affect the bottom lines of financial institutions for the rest of the year, dealers said. Friday's selling in local financial stocks also reflected worries over volatility in the global equity markets due to an economic slowdown, which may affect securities investment returns, dealers said. As of 11:01 a.m., the financial sector had fallen 1.34 percent to 1,019.18 points on the Taiwan Stock Exchange. The weighted index on the main board was down 0.33 percent to 8,096.48 points on turnover of NT$37.92 billion (US$1.15 billion). Among the falling financial heavyweights, Fubon Financial Holding Co. (???) had dropped 1.33 percent to NT$52.00, and Cathay Financial Holding Co. (???) was down 2.71 percent at NT$44.85. "The financial sector is very sensitive to interest rate changes, therefore, investors are worried that the latest rate cut will undermine the profitability of financial companies in reflection of a narrower interest rate spread," Hua Nan Securities analyst Henry Miao said. After a quarterly policymaking meeting Thursday, the central bank announced a decision to lower its interest rates by 0.125 percentage points, the first cut in 16 quarters. Market analysts said the decision was aimed at boosting Taiwan's economy as the country is struggling to maintain a 1 percent annual economic growth. With the interest rate cut, the discount rate has dropped to 1.750 percent, the rate of accommodations with collateral to 2.125 percent, and the rate of accommodations without collateral to 4.0 percent, effective Friday. "It was no surprise that large-cap financial stocks, such as Fubon Financial and Cathay Financial encountered heavy pressure soon after the local main board opened," Mao said. "With these heavyweights trending lower, it is unlikely that the broader financial sector will fare well." But even before Friday's selling, the financial sector had been dropping due to several disappointing earnings reports for August, as the profitability of local financial institutions, in particular life insurance companies, has been hit by turmoil and volatility in the global equity markets. Fubon Financial, which owns Fubon Life Insurance Co. (????), reported a nearly 55 percent drop in net profit for August, while Cathay Financial, which operates Cathay Life Insurance Co. (????), recorded a decline of more than 80 percent in net profit. "In the wake of the interest rate cut, the performance of the local financial sector will depend on the stability of the global financial market," Miao said. "Taiwan cannot isolate itself from the world markets, particularly as investor sentiment has been overshadowed by economic concerns." (By Frances Huang)


Updated : 2021-06-23 21:04 GMT+08:00