TAIPEI: Taiwan's central bank asked government-controlled banks to tighten loan risk management as property prices advance.

Perng Fai-nan, governor of the central bank, met with executives from Bank of Taiwan, Land Bank of Taiwan and Taiwan Cooperative Bank on Wednesday, James Yue, director-general at the central bank said.

Taiwan joins Singapore, Hong Kong, India and the mainland in moving to prevent excessive property-market swings, after falling interest rates drove prices higher. On October 23, Hong Kong tightened down-payment requirements for luxury homes for the first time since 1991. A month earlier, Singapore banned interest-only mortgages for uncompleted housing.

Perng urged banks "to tighten risk management", while advising that "they shouldn't look only at the borrower's collateral," adding that they "should place more focus on the lender's ability to repay the loans", according to an e-mailed statement.

Bank of Taiwan's acting President Tsai Fu-chih, who attended Wednesday's meeting with the central bank, declined to provide details about what was said. Tsai said the bank will continue to be careful in granting in home loans, which account for 31 percent of total lending.

The United Daily newspaper earlier said the central bank asked the island's government-owned lenders to curb loans used for property investment, sending Farglory Land Development Co and other property stocks plunging in Taipei trading.

Banks on the island of 23 million people have cut mortgage rates to the lowest since records began, helping drive up home prices 14.4 percent this year through September, according to Sinyi Realty Co, Taiwan's biggest real-estate brokerage.

Taiwan banks increased home loans by 3.6 percent to NT$4.89 trillion at the end of September from a year earlier, according to the central bank.

However, and looking forward to a possible property market cooling, an index tracking 33 construction companies on the Taiex index plunged 5.2 percent, the most in three months, at the close after more than doubling this year. Farglory, Taiwan's largest developer, sank 5.1 percent to NT$68.90. The Taiex slumped 2.4 percent.

John Chang Ming-daw, director-general of the Banking Bureau at the Financial Supervisory Commission, said the agency hasn't issued any special instructions to banks on lending policies and that it's up to banks to monitor credit risks.

Any restriction to lending will "suppress" real estate purchases on the island, Hung Chih-hung, a spokesman for Farglory Land, said. Cathay Real Estate Development Co, Taiwan's third-largest developer by market value, lost 6.8 percent to NT$13.10, the most biggest drop since July 13.

Bloomberg News

(HK Edition 10/30/2009 page2)