A number of smaller lenders are expected to face an additional round of mortgage stress tests and other precautionary measures as their default rates creep up, Financial Supervisory Commission Chairman Wellington Koo (顧立雄) said yesterday.
While banks are required to conduct routine stress tests, several smaller lenders would be required to show that they have the capacity to absorb rising mortgage defaults, Koo said on the sidelines of a forum on corporate governance in Taipei.
Koo made the comment after a number of credit-unions-turned-banks in May logged mortgage default rates exceeding 1 percent.
Photo: Wang Meng-lun, Taipei Times
The commission is to draft uniform parameters for the upcoming mortgage stress test, Koo said, adding that failed lenders would be barred from taking on more home loans and would see their loan loss provisions raised.
Meanwhile, as the TAIEX continued to reel yesterday from a global market sell-off prompted by the Turkish currency crisis, Koo downplayed Taiwan’s exposure to lira-based investments and assets.
Taiwan’s financial sector has limited exposure to Turkey and its currency, and European nations are expected the bear the brunt of the crisis, Koo said.
The local market is supported by solid fundamentals, and compared with other emerging markets, it has been more resilient against an ongoing flight of capital seeking to tap into accelerating economic growth in the US, he said.
As of the end of June, the nation’s exposure to Turkey was about NT$138.71 billion (US$4.5 billion), NT$17.36 billion of which is in bank loans, representing only 0.4341 percent of local banks’ combined net value and 0.029 percent of combined total assets, commission data showed.
Insurers have an exposure of NT$78.14 billion, about 0.33 percent of their combined assets under management.
Brokerage firms’ exposure was estimated at NT$5 million, while retail investors were holding about NT$78.14 billion in funds linked to Turkey, representing 0.33 percent of overall investments, the data showed.
Regarding the yuan’s 8 percent drop in the past three months, Koo said that no specific stress test against the Chinese currency’s tumble would be needed, because local financial institutions’ exposures to the yuan are already included in routine stress tests and are manageable, while China’s slowing economic growth does not automatically lead to instability in Taiwan’s financial market, he said.
Unlike Turkey, Beijing has ample foreign currency reserves to weather periods of volatility, he added.
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