Taiwan Financials: In-line interest rate policies in the US and Taiwan, minor positive/negative for banks/life insurers

The 25bps rate hike by the Fed and no rate change at the Taiwan CBC were in line with J.P. Morgan expectations. This should lead to modest earnings accretion at the banking operations with better USD lending spreads and swaps revenues and a mild drag on investment returns at life insurance operations due to higher recurring hedging costs, but overall, the implications on FY26E consensus earnings should be limited. Instead, no further liquidity tightening in TWD could be sentimentally positive for brokers and life insurers due to easing concerns on adverse impact on equity markets. J.P. Morgan still sees more upside to consensus DPS at insurance-centric FHCs, and KGI, Cathay and Fubon are top picks. Taking into account that the USD portfolio only accounts for 23% of total AIEA on average, sensitivity analysis suggests less than 0.5/0.2bps impact on NIM at USD/total portfolio for every 25bps Fed rate hike. Meanwhile, the enlarged USD-TWD interest rate differential should be positive for