Moves by the Financial Supervisory Commission to tighten risk requirements for new real-estate lending are helping to curb credit and concentration risks in the banking sector, Fitch Ratings’ Taiwan branch said in a report released on Thursday.
“We believe the move is broadly credit positive, although it may modestly lower banks’ tier 1 capital ratios,” Fitch Ratings said.
The commission said that risk weights are to increase to between 50 and 100 percent, from between 20 and 30 percent, for new second-mortgage loans for retail and corporate buyers to curb property speculation.
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The capital requirements would rise to between 150 and 200 percent, from between 75 and 150 percent, for new applications for land financing.
The measures should help moderate the pace at which banks lend and lower concentration risks, Fitch Ratings said.
Concentration risks associated with real-estate lending in Taiwan have climbed in the past few years, with mortgage and construction loans reaching 37 percent of total loans last year, up from 35 percent in 2019, it said.
Construction loans last year constituted 9 percent of total lending after increasing 18 percent in 2020 and 14 percent last year, well above overall loan growth of 5.5 percent and 7 percent for the respective years, it said.
Fitch Ratings said it expects higher potential credit risks associated with the property sector.
Home prices picked up 15 percent last year, following 7 percent growth in 2020, the company said.
However, the tightening measures would not lead to a drastic reduction in the sector’s overall lending, it said.
In other words, concentration risk would continue to rise if demand and returns prove strong enough, it said.
Small banks with high property concentration risks would be more susceptible to the policy changes, it said, adding that such banks should cut their high-risk property exposure to mitigate the effect on their capitalization.
As global central banks start to embark on monetary normalization, Fitch Ratings said it is to revise its interest rate forecast for Taiwan, from its current expectation that there would be no change in policy.
Higher rates might dampen Taiwan’s richly valued housing market, it said.
The nation’s GDP growth would remain robust this and next year, averaging about 3 percent annually, it said.
The latest regulatory tightening came after other policy moves to slow the growth in property-related loans, including stricter loan-to-value requirements, it said.
The share of property in new lending fell to 49 percent last year from 58 percent in 2020, it said.
Fitch Ratings expects total bank loans in Taiwan to grow 6 percent this year, down from a 7 percent increase last year.
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