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Perng’s warning spooks local bourse

Central bank Governor Perng Fai-nan’s (彭淮南) cautious statement about the nation’s property market sent construction shares plunging more than 5 percent yesterday, dragging down the main bourse, which lost 2.37 percent at the close of trading in Taipei yesterday.

“Banks should pay attention to risk control when offering mortgages to borrowers. [They] should not just look at the value of the collateral, but should pay greater attention to the borrower’s ability to repay loans,” the central bank said in an e-mailed statement yesterday, quoting Perng.

The statement was issued in response to a report by the Chinese-language newspaper United Daily News yesterday that the central bank planned to bar state-run lenders from purchasing negotiable certificates of deposit to stop them from cutting mortgage interest rates.

The newspaper, citing anonymous central bank officials, said Perng met three ranking bank officials from the Bank of Taiwan (臺灣銀行), Land Bank of Taiwan (土地銀行) and Taiwan Cooperative Bank (合作金庫銀行) on Wednesday to voice his concern over rate cuts, which could fuel property speculation.

“The report is untrue,” the central bank said in the statement. “The governor did hold a meeting to underscore the importance of loan risk management, but he made no mention of interest rates.”

The news report was taken as a sign that the nation’s top monetary regulator intended to raise interest rates to rein in property prices, prompting investors to dump construction shares.

The central bank issued the statement at 11am, saying any rate adjustment must be discussed and decided by its board meeting.

The building materials and construction sub-index tumbled 5.21 percent yesterday, the worst performer among all sectors, Taiwan Stock Exchange figures showed.

The Financial Supervisory Commission yesterday declined to comment when asked whether the central bank’s statement was a move to curb an overheating property market.

Citing statistics from the central bank, Shiau Chang-ruey (蕭長瑞), deputy director-general of the commission’s Banking Bureau, said that the nation’s 37 domestic banks had NT$4.89 trillion in outstanding home mortgage and construction loans at the end of last month. That took up around 20 percent of the domestic banking sector’s total deposits, but was still far below that statutory 30 percent level and the record-high level of 25 percent in 2007, Shiau said.

He added that only 1.2 percent of these mortgage loans had become nonperforming.

In accordance with Article 72-2 of the Banking Act (銀行法), domestic banks are barred from granting more than 30 percent of their total deposits, including proceeds from the issuance of debts, to home borrowers and construction firms.

In a separate statement issued after the market closed, the central bank attributed yesterday’s stock market dip to the settlement of MSCI Taiwan index futures and the impact of declines in major US stocks indexes overnight because of weak new housing sales.
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