Taiwan's recent move to approve licenses for three virtual banks is credit negative for existing local banks because the arrival of the new competitors could further pressure their profitability in the long run, Moody's said in an Aug. 5 credit outlook.

In late July, Taiwan's Financial Supervisory Commission granted virtual bank licenses to consortiums led by Chunghwa Telecom, Rakuten Inc. and LINE Financial Corp.'s Line Financial Taiwan Corp. as part of the regulator's plan to foster innovation and financial inclusion. The virtual banks would begin operations by early 2020, according to Moody's.

The rating agency noted that although the new virtual banks' entry would increase competition, their immediate threat to existing banks' franchises will be limited. However, the virtual banks are likely to offer more attractive deposit rates to customers than incumbent banks because they can save on branch operating expenses and staff costs, the agency said.