E.Sun Financial Holding Co (玉山金控) yesterday voiced reservations about government plans to tighten provision requirements for mortgage operations, saying existing risk controls already allow domestic lenders to withstand property price corrections.
The bank-focused conglomerate has NT$200 billion (US$6.58 billion) of home loans and may emerge harmless from a property price correction of up to 20 percent, thanks to a conservative lending approach, E.Sun Financial president Joseph Huang (黃男州) said on the sidelines of a public function.
Main subsidiary E.Sun Commercial Bank (玉山銀行) keeps average mortgage lending at 42 percent of property values, Huang said, though loan-to-value ratios might rise to 70 percent for selective borrowers, such as first-time home buyers with a healthy credit profile.
Further capital requirements for home loans are not necessary, since various credit controls at present are sufficient to guard against loose lending, Huang said.
The Financial Supervisory Commission has indicated plans to ask lenders to raise provisions for real-estate-linked loans.
Growing downside risks for the property market warrant the policy plan, and the banking sector’s record profit this year should ease its impact, commission Chairman William Tseng (曾銘宗) said recently.
Loans relating to home purchases, renovations and construction totaled NT$7.82 trillion, about 31 percent of the sector’s loan books, according to the commission. The ratio would be higher if land financing and corporate loans collateralized by real estate deals were included.
“Banks would have to raise interest rates on mortgage loans if the commission raises provision thresholds, thereby increasing funding costs,” Huang said.
The commission might consider lifting provisions for property loans to 1 percent and higher or impose the requirements on banks with heavy mortgage operations. Currently, banks already have to set aside provisions equivalent to 1 percent of their Tier 1 capital.
Lenders also have to selectively limit mortgages to about 50 percent of property values as required by the central bank, Huang said.
Interest rates on home loans are unlikely to be less than 2 percent, despite the absence of rate adjustment, he added.
The planned capital restriction and potential default by touchpanel maker Wintek Corp (勝華) would have a limited impact on E.Sun Financial given the modest amount involved, Huang added, saying that E.Sun Bank took part in syndicated loans to Wintek and Ting Hsin International Group (頂新集團), but both deals are small in terms of value, far lower than the lender’s coverage funds sized at NT$10 billion.
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