Mon, Jul 30, 2007 - Page 12 News List

Mortgages could be source of next crisis

TEMPTATION If not handled properly, an overly aggressive expansion by lenders into the housing mortgage sector could very likely turn into a financial headache

By Amber Chung  /  STAFF REPORTER

The aggressive expansion of local banks has turned the rapidly ballooning housing mortgage segment into the next risk area for the nation's troubled banking sector, Macquarie Research said.

"For us, the overarching concern is no longer unsecured consumer lending, but rather than the mortgage space, an area where banks have been aggressively expanding as they seek to replace unsecured consumer loans as a growth driver," Chris Hunt, Macquarie's head of Taiwan equities research, said in a research note last week.

Even a moderate uptick in credit costs could impair the already meager profitability of housing mortgage, Hunt said.

Despite a slim possibility of a mortgage bad loan blowout, "we do perceive some risks," Hunt said, especially for new mortgage loans that were issued to speculators before the appropriate value assessments had been made.

Following the consumer credit abuse storm, local banks rediscovered the secured housing mortgage business and jumped into the segment in droves, driving the aggregate mortgage lending close to its regulatory upper limit of 30 percent of the total deposit balance and outstanding financial debts.

Despite requests by banks that the cap be lifted, the Financial Supervisory Commission did not budge, mostly over concerns of concentrated risk.

Instead, it asked banks to securitize their mortgage lending portfolios for more leeway.

Taiwan Cooperative Bank (合作金庫), which is approaching the limit in mortgage lending, said on Friday it would issue NT$30 billion (US$913 million) in residential mortgage backed securities.

Taiwan Ratings Corp (中華信評), a local arm of Standard & Poor's Ratings Services, said last week it did not expect a hard landing for the nation's fast growing mortgage business as the red-hot property market showed no sign of a sudden turnaround in the short run.

However, prudence remained of the essence as a delayed negative effect would likely break out when the economy enters its downtrend, as has been the case in the US and Hong Kong, Taiwan Ratings said.

Macquarie Securities retained its "underweight" rating on local banks and banking-centric financial holding firms, citing several concerns including continued margin pressure under severe competition, the consumer credit crisis, a shortage in replacement growth drivers, unsustainable fee-based income, demand for offshore products, modest profitability, a lack of hoped-for consolidation and more flexibility for banks wishing to expand in China in the next year.

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