FSC taking new measures to tighten mortgage loans

The China Post news staff

The China Post news staff–The Financial Supervisory Commission (FSC) announced yesterday three new measures to fight against possible speculation on the real estate market by tightening mortgage loans to be extended by financial institutions. Under the new measures, the weighted risk index for all new bank loans extended for all housing units not for buyers’ own use will be raised to the unified ceiling of 100 percent. The staff at banks will have to conduce on-site appraisal for the real estate properties under transactions rather than simply paperwork review as now. In addition, the FSC also made it clear that the Cabinet-level financial watchdog agency will include banks’ lending for property transactions as a key criterion for financial examination when reviewing the banks’ performance. FSC officials said that the statistics compiled by the Central Bank of the Republic of China (Taiwan) show that among all loans provided by banks in December 2010, those for purchasing housing units and construction accounted for 34.42 percent of all outstanding loans, the highest level in five years. The new measures are designed to prevent banks from excessively exposing their financial risks with overconcentration on a specific sector, the officials said. The steps will be enforced as early as possible. Lin Dong-liang, chief secretary at the FSC, said the new measures “will have profound impact” on banks’ business operations. But he stressed banks’ existing customers who have already received their mortgage loans will not be affected because only new loans will have to comply with the rules.

Under the current practice, the weighted risk exposure for banks stand at 35 percent, 45 percent, or 75 percent when customers acquire the loans for housing units to be purchased by the customers themselves or for their spouses or underaged children. The risk exposure will be increased to 100 percent except for housing units registered under the buyers’ own names. The FSC also set stricter definitions of bank loans for “housing units for own use” to cover only realty properties by citizens of the Republic of China who have no apartments or houses registered under their names. Banks will also have to accurately examine the real use of the loans involving housing units when reviewing applications for loans, said the FSC officials. The financial institutions should strictly abide by Article 72 of the nation’s Bank Law that limits the proportion of construction loans to 30 percent of the total outstanding loans provided by them. The officials said banks should give accurate appraisal of the value of the realty assets involved when offering the loans. Such evaluations must be included into items subject to the internal audit of the banks and further examinations by the FSC. It has been a common practice for banks to categorize loans for maintenance costs for the designated properties as mortgage loans. In the future, the loans for fixing and maintaining the housing units should no longer be lumped into the mortgage loans, said FSC officials.