Taiwan expected to keep close watch on banks’ properly loan risks

Authorities have hiked banks’ RRR to slow credit inflows and cool home prices.

Taiwan’s latest reserve requirement ratio (RRR) hike and lowering of a mortgage cap signifies that the regulator is keeping a close watch on banks’ property loan-concentration risk, according to Fitch Ratings.

Taiwan’s central bank has hiked the RRR for banks by 25 basis points (bp) to 5.75% on 13 June. Authorities expect that it would slow credit inflows into its property market and help cool rising home prices.

The central bank has also lowered the mortgage loan-to-value (LTV) cap for second homes in designated areas to 60% from 70%, effective 14 June. 

“The policy move reinforces our expectation that the regulator will continue to keep a close watch on banks’ property loan-concentration risk and take additional prudential measures if these risks in property-related lending increase further,” Fitch Ratings said in a commentary.

The latest policy adjustment also highlights the growing risks in banks’ exposures to the property market as home prices continue to rise, Fitch added.

The growth in mortgage loans and home prices has picked up pace since late-2023, after slowing from a peak in 2021.

This accelerating loan growth– especially in higher-yielding foreign-currency loans– steady fee income and modest credit costs are likely to continue to support stable core profitability, according to Fitch.

In April, loans extended by Taiwan's domestic banks to small and medium enterprises (SMEs) rose to $305b (NT$9.88t) in April 2024.