State-owned Land Bank of Taiwan (土地銀行), the nation’s largest property lender, has sounded a note of caution about business growth this year following the tapering of US quantitative easing (QE), saying international funds are likely to flow to advanced markets.
The housing market is likely to stay flat this year, and the government favors zero or small growth in mortgage lending, bank chairman Wang Yao-shing (王耀興) said in the legislature when asked to comment on the lender’s operations.
“The bank has been conservative in appraising property values, so that it can emerge unharmed from price corrections of up to 40 percent,” Wang said.
Land Bank’s home loans totaled NT$651 billion as of the end of November, up 1.075 percent from the same period a year earlier, in line with the government’s plans to cool the property market.
The lender may maintain similar-sized loan books this year, as soaring housing prices continue to top the government’s list of concerns, Wang said.
However, the banker expressed concern that the housing market may contract this year as the US Federal Reserve may complete its exit from QE and raise interest rates.
This would likely cause funds to flow to the US and Europe, representing an unfavorable situation for property in emerging markets such as Taiwan.
The housing market, as we have seen in the past, will suffer once interest rates hit 3 percent, Wang said.
To strengthen risk controls, Land Bank appraises home value conservatively at 80 percent of market rates, and caps home loans at 75 percent of discounted values, Wang said.
The cautious approach is designed to allow the bank room to cope with major external factors, such as a 40 percent downturn in housing prices, Wang said.
In a related development, the Financial Supervisory Commission yesterday approved plans by Cathay United Bank (國泰世華銀行), the banking subsidiary of Cathay Financial Holding Co (國泰金控) to set up a subbranch in China’s Shanghai Free Economic Zone.
Banking operations within the zone will enjoy greater legal flexibility for cross-border business, trade financing and other services, the commission said.
Taiwan is working toward building economic pilot zones, but plans have been held back due to differences between government agencies over issues such as taxation and labor.