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CBC governor urges bankers to be cautious in housing loans.

Taipei, Oct. 29, 2009 (CENS)--In an expression of his concern over the raging housing speculation, Perng Fai-nan, governor of the Central Bank of China (CBC), urged leading domestic bankers yesterday (Oct. 28) to be cautious in extending loans to housing speculators, especially those for luxury houses.

In a meeting with the chairmen of the Bank of Taiwan, Land Bank of Taiwan, and Taiwan Cooperative Bank, Perng asked them to avoid curbing interest rates in soliciting housing-loan business and strictly examine the conditions of applicants for luxury-housing loans, on top of the value of collateral, so as to dampen housing speculation which has driven housing prices, especially in Taipei, to sky-high level. Luxury-house prices in Taipei, for instance, have topped NT$1-2 million per ping (one ping equals 36 square feet).

Perng noted that it's dangerous for banks to only consider the value of collateral in extending loans to luxury-house buyers, due to the possible change in the value of those houses. Therefore, income sources and cash flow of such loan applicants should be taken into account, according to Perng. The raging speculation in luxury houses, said Perng, has elicited extensive abhorrence in the society

Scramble among domestic banks to solicit housing-loan business with extremely low interest rates has fueled housing speculation and banks could incur heavy loss once interest rates pick up next year, according to Perng,

In the latter scenario, speculators could dump their houses on lending banks, creating huge non-performing loans. Therefore, Perng urged banks to focus on salaried persons in housing-loan business, as they are likely to honor their debt obligations even if interest rates rise. Perng pointed out that while South Korea and Singapore have started to embrace a tighter monetary policy, the CBC will avoid embracing a tight policy drastically, as the economy just begins to recover and inflation remains stable.

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Title Annotation:Central Bank of China, Perng Fai-nan
Publication:The Taiwan Economic News
Article Type:Brief article
Geographic Code:9TAIW
Date:Oct 29, 2009
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