The central bank’s latest rules to tighten mortgage lending are credit-positive for local banks because they reduce the banks’ exposure to Taiwan’s overheating property market, Moody’s Analytics said yesterday.
“The rules are credit-positive because they will subject Taiwanese banks to stricter underwriting policies for mortgage lending,” Hong Kong-based Moody’s Analytics economist Alaistair Chan (陳志雄) said in a report.
On Thursday last week, the central bank said it had requested local lenders to limit loans to homeowners to 50 percent of the house’s value for the third and more homes.
Lenders also need to limit loans to 50 percent of a house’s value for properties worth more than NT$70 million (US$2.34 million) in Taipei, NT$60 million in New Taipei City and for luxury houses worth more than NT$40 million elsewhere in Taiwan, the bank said.
Chan said the central bank’s other measures to lower the ceiling of lenders’ loan-to-value (LTV) ratio — the percentage of a home’s value that a bank is allowed to lend a property buyer — from the current between 60 and 70 percent would provide an extra buffer for banks in the event of a major property price correction and help curb speculative transactions, as well as keep overall housing prices in Taiwan at more sustainable levels.
“Although the steps will slow banks’ mortgage growth, the central bank’s moves emphasize the importance of a healthier and more rational real-estate market, a positive for banks’ asset quality,” Chan said.
These measures will further affect banks with a relatively high exposure to residential mortgages, such as Land Bank of Taiwan (土地銀行), Hua Nan Commercial Bank (華南商業銀行), Cathay United Bank (國泰世華銀行), Taipei Fubon Commercial Bank (台北富邦銀行) and E.Sun Commercial Bank (玉山銀行), Chan added
Chan said the central bank’s new “macro-prudential” measures reflected the monetary authorities’ cautious attitude toward the housing market over concerns of the rising property prices in Taiwan, especially in the Greater Taipei area.