Domestic banks’ earnings this year might increase by NT$40 billion (US$1.24 billion) due to a windfall as regulators mull easing provision requirements for mortgages to stimulate the slowing housing market, analysts said.
“A lowered mortgage provision rate would result in NT$40 billion in extra profits for banks, as they write back the provisions they have allocated,” Yuanta Securities Investment Consulting Co (元大投顧) analyst Peggy Shih (施姵帆) said in a note on Tuesday.
Shih said that NT$40 billion represents about 10 percent to 13 percent of the industry’s aggregate profits for this year.
As the Financial Supervisory Commission is reportedly also considering lowering the risk weighting of mortgage loans and raising the upper limit of property-related loans in proportion to total deposit ratio, Shih said the move might lead to loan growth, as banks would have more room to underwrite more mortgages.
Given that housing prices have been consolidating for the past year — Taipei’s home prices posted a slight rebound recently — banks might consider lifting their loan-to-value ratios to elevate overall lending in the second half, Shih said.
Banks with a higher number of mortgages, such as state-run Hua Nan Commercial Bank (華南銀行) and Chang Hwa Bank (彰化銀行), are expected to be the key beneficiaries of eased provision requirements, according to the Yuanta note.
The banking arms of First Financial Holding Co (第一金控), E.Sun Financial Holding Co (玉山金控) and CTBC Financial Holding Co (中信金控) are also expected to benefit from the anticipated regulatory change, with their pre-tax profits this year projected to see annual gains of about 6 to 7 percent, the note said.
Taiwan Cooperative Bank (合作金庫) is expected to yield the highest provision write-back gain of NT$2.57 billion in relation to its mortgage book, which totaled NT$2.57 billion as of the end of April and accounted for 26 percent of the bank’s total lending, the note said.
The commission yesterday declined to comment on the potential changes.
“We are still in talks about lowering the provision rate of home loans from 1.5 percent to 1 percent, and there is no clear timetable,” a commission official, who declined to be named, told reporters.
The commission’s latest data showed that the nonperforming mortgages ratio reached 0.19 at the end of April, the highest in the past 30 months.
The ratio continued to inch upward as of the end of May, but was still deemed manageable, the official said.
Home loans grew 4.37 percent annually to NT$6.17 trillion as of the end of May, while construction-related loans dipped 2.05 percent to NT$1.62 trillion, as most developers remained skittish, the central bank reported last month.
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