Bank provisions for home loans raised to 1.5 percent

Domestic banks are to be required to allocate 1.5 percent of their total housing loans as provision for bad debts within the next three years to reduce risks should the property market slow down, the Financial Supervisory Commisson (FSC) said yesterday.

The announcement came after the commission reached an agreement with representatives from local lenders and the Bankers Association (銀行公會) after evaluating the feasibility of imposing the new rule.

“In general, domestic banks support the rule,” Banking Bureau Deputy Director-General Jean Chiu (邱淑貞) told a news conference after the meeting.

Taiwanese banks will have to start setting aside provisions to meet the rule from the end of this year and gradually increase the amount to 1.5 percent of their housing loans within the next three years, Chiu said.

At present, local banks voluntarily allocate about 1 percent of their housing loans as provisions, Chiu said.

However, under the new rule, the nation’s banking sector will need to earmark an additional NT$27.9 billion (US$906.58 million) as provisions for bad debts, she said.

Chiu said smaller banks may face bigger pressure to cope with the new rule, but larger banks should have the resources to meet the required provision in one to one-and-a-half years.

In related news, various deregulations of Taiwan’s offshore banking unit (OBU) and offshore securities unit (OSU) businesses are to take effect on Friday, according to a statement released by the commission yesterday.

The commission is to allow OSUs to offer mutual funds with investments in Taiwan-listed companies, stock indices and exchange traded funds.

In addition, local financial institutions can start offering their OSU and OBU clients funds with more than 30 percent of assets invested in Taiwan’s securities market after the rule change, the statement said.

The move will allow OSUs and OBUs to sell an additional 194 fund products worth about NT$277 billion currently, according to commission data.

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