In order to control the real estate credit risk, the Financial Supervisory Commission of Taiwan (FSC) resolved in 2011 to bring the banks with relatively high concentration on real estate-linked loans ("Banks under Surveillance") under surveillance and control. Under such control measures, the amount of the loans extended for purchasing and repairing residence shall not exceed 30% (in the case of the top 10 banks ranked by reference to such type of loans) or 40% (in the case of other banks) of the total loans. In addition, the amount of the loans extended for construction purposes shall not exceed 10% (in the case of the top 10 banks ranked by reference to such type of loans) or 15% (in the case of other banks) of the total loans. The FSC further required that the Banks under Surveillance would need to submit improvement plans therefor.
At the end of 2015, the FSC considered that the number of the Banks under Surveillance decreased, and the overall concentration on real estate-linked loans decreased as well. In addition, the existing regulations other than the aforementioned control measures can regulate the banks' practice with regard to real estate-linked loans effectively, as well as enhance the banks' ability to undertake the risks involved. Therefore, the FSC decided to relax the surveillance and control measures by allowing the banks to manage such loans by themselves depending on the risks involved.
After the aforementioned control measures are relaxed, the construction loans of commercial banks will still have to perform in accordance with Article 72-2 of the Banking Act. In other words, except for the exceptions prescribed in the said Article, the total amount of loans extended for residential construction and construction for business purposes by a commercial bank shall not exceed 30% of the aggregate of such commercial bank's deposits and bank debentures issued at the time such loans are extended. Whether a loan is extended for "residential construction and construction for business purposes" under the said Article would depend on the purpose of the loans. Any loan for constructing or purchasing residences and/or buildings for business purposes should be deemed as being for "residential construction and construction for business purposes," regardless of the type of the building constructed or purchased, and regardless of whether it is registered as "Residential and Business Purpose," "Business Purpose" or" Industrial Purpose."
It is generally anticipated that the relaxation of the control measures will allow the banks to inject more funds into the domestic real estate market; however, its impact on the real estate/construction market still remains to be seen.