Taiwan Banks Seek Deposits as Regulator Pressures Over Mortgages

Taiwan's banking sector is facing increased scrutiny from regulators as they tighten lending standards to manage property loan-concentration risk. In response, banks are actively seeking deposits to offset potential risks in the mortgage market. The central bank's recent 25 basis points hike in the reserve requirement ratio (RRR) and reduction of the mortgage loan-to-value (LTV) cap for second homes indicate a focus on managing this risk.

The growth in mortgage loans and home prices has picked up pace since late-2023, after slowing from a peak in 2021. Fitch Ratings expects the regulator to continue monitoring banks' property loan-concentration risk and taking additional prudential measures if these risks increase further. The recent RRR hike and LTV cap reduction are part of this effort to maintain stability in Taiwan's mortgage market and prevent excessive risk-taking by banks.



The RRR hike, from 5.5% to 5.75%, increases the amount of funds banks must hold in reserve, potentially reducing their ability to lend and impacting their profitability. However, it also encourages banks to seek deposits to meet the higher reserve requirement, which could lead to increased competition for deposits and potentially higher deposit rates. This could benefit depositors but may also lead to a shift in banks' focus towards attracting and retaining deposits, potentially at the expense of other business activities.



Taiwanese banks are actively seeking deposits to offset potential risks in the mortgage market, as the regulator tightens lending standards. The central bank's recent 25 basis points hike in the reserve requirement ratio (RRR) and reduction of the mortgage loan-to-value (LTV) cap for second homes indicate a focus on managing property loan-concentration risk. This move comes amidst accelerating mortgage loan growth and rising home prices, which have picked up pace since late-2023 after slowing from a peak in 2021. Fitch Ratings expects the regulator to continue monitoring banks' property loan-concentration risk and taking additional prudential measures if these risks increase further.

In conclusion, Taiwan's banking sector is adapting to the regulator's mortgage cap and LTV ratio changes by seeking deposits to maintain liquidity and comply with new regulations. The recent RRR hike has implications for banks' liquidity and deposit growth strategies, potentially leading to increased competition for deposits and higher deposit rates. The regulator's focus on managing property loan-concentration risk is crucial in maintaining stability in Taiwan's mortgage market and preventing excessive risk-taking by banks.