Sat, Sep 27, 2014 - Page 13 News List

FSC to raise real-estate provision requirements

By Crystal Hsu  /  Staff reporter

The Financial Supervisory Commission (FSC) plans to raise provision requirements for real-estate-linked lending as domestic lenders earn hefty profits, but downside risks for the property market are deepening.

The commission is studying the regulatory change that may be finalized by the end of next month, FSC Chairman William Tseng (曾銘宗) said on Thursday while taking questions from lawmakers regarding mortgage operations.

Loans relating to home purchases, renovations and construction totaled NT$7.82 trillion (US$25.89 billion), accounting for 31 percent of the sector’s outstanding loans, according to the commission.

Home deals dropped 19 percent year-on-year below the 250,000 mark to 244,300 for the first eight months, almost as bearish as in 2003 amid the SARS epidemic, the latest government data showed.

The government is contemplating more unfavorable measures ahead of the nine-in-one elections in November and the presidential elections in early 2016. Assorted polls cite steep property price hikes as voters’ biggest concern.

The commission may consider lifting provisions for property loans to 1 percent or impose requirements on banks with heavy mortgage operations, the commission said.

Currently, banks have to set aside provisions equivalent to 1 percent of their Tier 1 capital, though risk factors for mortgage operations are higher than other lending.

If realized, the new requirement would translate into extra provisions valued at NT$30 billion to NT$60 billion for the banking sector, analysts say.

The nation’s financial institutions may achieve earnings of more than NT$300 billion this year with net profits approaching NT$230 billion as of last month, Tseng said, suggesting plans to “tighten” should not cause an unbearable burden.

The non-performing loan ratio dropped to 0.28 percent in July this year, as lenders have adopted a cautious and conservative business approach.

The commission is set to allow banks time to meet higher capital thresholds, which might pose a greater burden on smaller-sized lenders, Tseng said.

However, banks with over-concentration of mortgage operations may have to post provisions higher than 1 percent, the commission said.

The planned provision requirement will be the third policy the commission has advised this year to discourage property lending, despite the nation’s improving economic outlook.

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