The Central Bank of the Republic of China has locked its sights on eight or nine public and private banks in the first wave of its investigation of domestic financial institutions’ mortgage lending practices concerning luxury properties and real estate speculators.
Financial industry sources said the investigation would center on three main points. The first is whether the banks have in fact adopted the “three tightening measures” to curb mortgages for property speculators. The measures include lowering maximum loan-to-value ratios for such mortgages, raising interest rates on mortgages for luxury homes and for borrowers who own more than two properties, and not offering grace periods to speculators, during which borrowers only have to pay the interest but not the principal on their mortgages.
The second main point of the investigation, according to the sources, is to examine whether the information requested from and provided by the banks to the central bank on their mortgage interest rates, loan-to-value ratios and other related data has indeed been accurate.
The third focus of the probe is to determine if each of the banks’ lending practices have in fact been in line with risk management standards stipulated by related regulations, the sources explained.
They pointed out that the “three tightening measures” have already been put into practice for more than a month. The nation’s three leading mortgage lenders—namely the Land Bank of Taiwan, Taiwan Cooperative Bank, and the Bank of Taiwan—all witnessed significant drops in new mortgage business in March.
The Land Bank of Taiwan, which ranks first in the country in mortgage lending, saw the largest contraction for the month, at more than NT$2 billion (US$63.7 million), according to the sources.
As for new mortgages for real estate speculators, or borrowers who own more than two properties, the Land Bank of Taiwan and the Bank of Taiwan only registered a slight increase of NT$70 million to NT$80 million in March, the sources said. (SB)