Mortgage Price War to Hurt Taiwan Banks: S&P

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Last updated at: (Beijing Time) Wednesday, August 21, 2002

Mortgage Price War to Hurt Taiwan Banks: S&P

Standard & Poor's (S&P) said Wednesday that ongoing residential mortgage price competition in Taiwan is likely to reduce the profitability of the island's banking sector.

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Standard & Poor's (S&P) said Wednesday that ongoing residential mortgage price competition in Taiwan is likely to reduce the profitability of the island's banking sector.

Any reduction in profitability would in turn imply increased industry risk in a sector in which profits are already thin in comparison with many other banking systems, according to S&P.

In Taiwan, many banks have been reporting net returns after tax on average assets of less than 1 percent, compared with levels of above 1 percent enjoyed by stronger banks elsewhere in Asia.

Residential mortgages have tended to represent a stable source of income for banks in Taiwan, as well as in many other banking systems.

Therefore, an increasing number of banks in Taiwan are offering new low-price residential mortgages in an attempt to take a larger slice of the mature domestic residential mortgage market.

Given the relatively high residential mortgage delinquency rates and weak real estate prices in Taiwan, it is uncertain if most banks are capable of selecting customers of sufficient creditworthiness to compensate for the lower interest rates charged on these new mortgages, according to S&P.

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