The Financial Supervisory Commission (FSC) on Tuesday said that eight local banks should reduce the number of construction loans issued and enhance risk management, or they would be ordered to set aside higher loan-loss provisions.
The commission’s warning came after it last week announced that it would conduct a special examination of the top 10 mortgage lenders from this month to March, as part of the government’s efforts to rein in the overheated property market.
All local banks’ combined construction loans, indicative of the confidence of the construction sector, hit a record at NT$2.69 trillion (US$94.47 billion) as of the end of October, which accounted for 8.62 percent of their total lending, the highest ratio compared with a range of 7.13 to 9.12 percent from 2015 to last year, the commission said.
Photo: CNA
Among the nations’ 36 banks, construction loans made up more than 10 percent of eight banks’ outstanding lending, signally their concentration on construction loans, Banking Bureau Chief Secretary Phil Tong (童政彰) told a news conference in New Taipei City.
Although the eight lenders’ non-performing loan ratios for construction loans are not much higher than the average, their failure to diversify their lending portfolio would result in higher risks, Tong said, declining to name the banks.
The commission has asked the eight banks to submit improvement plans soon, and would monitor their performance on a monthly basis, Tong said.
It is not easy for banks to slash their construction loans in the short term, as such loans are usually long-term, but the commission expects banks to at least refrain from approving more new loans, he said.
If the eight banks fail to improve, they would need to set aside 2 percent loan-loss provisions on their construction loans, up from the current requirement of 1.5 percent, Tong said.
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