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Banks say drop in housing prices 'tolerable'

TAIPEI, Taiwan -- After a principal official admitted that housing prices in Taipei are overvalued, Taiwan's eight state-invested banks on Wednesday said they could absorb the blow if property prices were to plunge by up to 20-30 percent.

While briefing the Finance Committee of the Legslative Yuan, Minister of Finance Chang Sheng-ford (張盛和) sounded an alarm over the risk of Taipei's real estate market price-bubble bursting.

Convener of the Legislature's Finance Committee Fei Hung-tai (費鴻泰) queried representatives from Taiwan's eight stated-invested banks about their assessment of operating risks and their safeguards against sudden shocks to the housing market.

Bank of Taiwan (台灣銀行), Hua Nan Commercial Bank (華南銀行), Chang Hwa Bank (彰化銀行), Mega International Commercial Bank (兆豐國際商銀), Land Bank (土地銀行) and First Bank (第一銀行) all cited stress tests results in saying that their businesses can carry on as usual when facing a maximum drop of 30 percent in Taipei property prices.

Bank stress tests are analyses conducted under unfavorable economic scenarios which are designed to determine whether a given bank has enough capital to withstand the effects of adverse developments.

Taiwan Cooperative Bank (合作金庫) said it has passed stress tests simulating a scenario in which housing prices experience a 20-percent decline, adding that it hadn't before performed a stress test scenario for a 30-percent drop.

Taiwan Business Bank (台灣企銀) told the Legislature it is highly confident that it can tolerate a 20-percent plunge in housing prices. However, if a theoretical 30-percent decline is caused by systemic liquidity risk or some global financial crisis, Taiwan Business Bank emphasized, it is not so sure how it would weather such a financial disaster.

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