Sat, Jul 14, 2018 - Page 12 News List

Mortgage delinquencies may prompt stress tests

By Ted Chen  /  Staff reporter

The Financial Supervisory Commission is mulling stress tests for banks as mortgage delinquencies creep up.

The commission is monitoring mortgage lending and would implement a specific stress test when deemed necessary, Banking Bureau Chief Secretary Chen Yen-yi (陳妍沂) said on Thursday.

While banks are already required to conduct annual stress tests to gauge their resilience against factors such as declining home prices and narrower interest spreads, the commission plans to take a closer look at the reports, Chen said.

As the parameters of such tests are defined by each bank, the commission has not ruled out rolling out a mortgage lending stress test with a unified set of parameters if it finds the conditions of the self-assessments to be too lenient or do not fully reflect risks, she said.

However, lenders have demonstrated their ability to absorb potential losses and have maintained high levels of bad debt coverage, she said, adding that the industry has remained relatively health.

The previous round of unified mortgage stress tests was conducted in 2016, and the nation’s economic condition has not seen a marked degradation, Chen said.

Concern over mortgage lending rose following a round of stress tests last week on US banks by the US Federal Reserve, amid rising worries that lenders could be weakened by the escalating trade war between the US and China.

The commission late last month reported that as of the end of May, mortgage delinquencies had risen to NT$17.2 billion (US$562.9 million), or 0.26 percent of the NT$6.7 trillion total, the highest since 2012.

At the same time, construction loan delinquencies loans had risen to NT$4.7 billion, or 0.23 percent of the total of NT$2 trillion, it said.

Lenders have become more cautious about real-estate-related exposures as delinquencies creep up, with many maintaining a bad debt coverage ratio of 400 percent, Banking Bureau Deputy Director-General Sherri Chuang (莊琇媛) said.

Chuang attributed the rising delinquencies to a cooling property market, which has been dragged down by higher taxes.

Speculators caught by falling home prices and home sales turnover were unable to meet debt servicing requirements, she said.

Market headwinds have also caused some property developers and construction companies to use higher leverages, leading to higher delinquencies, she said.

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