Fitch: Taiwan Mortgage Risks Contained; But Offshore Risks Growing

Asia-Pacific Banks: Chart of the Month – Taiwan here TAIPEI, March 31 (Fitch) Fitch Ratings says in a new report that it expects risks to the Taiwanese banking sector from a cooling housing market to be contained. Macro-prudential measures and the likely reversal of an accommodative monetary policy have helped limit speculative house purchases and the build-up of systemic risks. The sharp increase in house prices, which has been plateauing since 4Q14, was not a credit-fuelled one. Mortgage growth has been tepid since 2008. Banks’ mortgage risks are contained. The agency estimates household debt servicing would remain manageable under a severely stressed scenario of a 200bp interest rate hike – as long as low unemployment is sustained. Mortgages for owner-occupied properties, which are generally of lower risk, dominate banks’ mortgage portfolio. Low mortgage growth and easing regulations relating to overseas risks (mainly China) have led to an increase in offshore exposure. Fitch expects loans at Taiwanese banks’ offshore banking units to continue to rise to about 19% of total loans by end-2016 from 8% at end-2009. Risk profiles would rise if the banks’ profitability and loss-absorption buffers do not increase to keep pace with the higher credit risks and operational challenges that may come with heightened foreign exposure.