Chinese regulators are asking banks to speed up approval of new loans to cash-strapped private real estate developers, in a move aimed at restoring homebuyer sentiment and reducing lenders’ assets, according to people familiar with the matter. There is a risk that quality may be compromised.
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Chinese regulators are asking banks to speed up approval of new loans to cash-strapped private real estate developers, in a move aimed at restoring homebuyer sentiment and reducing lenders’ assets, according to people familiar with the matter. There is a risk that quality may be compromised.
The initiative takes advantage of the Chinese government’s latest support package, the “whitelist” mechanism, aimed at easing the sector’s unprecedented liquidity crunch and encouraging home purchases. Because new housing prices have fallen February is the 8th consecutive month.
Most of the country’s largest banks have so far avoided significantly increasing their credit exposure to the crisis-hit sector, despite repeated urging from the Chinese government, leaving an industry vital to the economy. Hopes for a revival have been dashed.
The world’s second-largest economy’s real estate sector has been experiencing one crisis after another since 2021 after a regulator’s crackdown on developers’ high leverage sparked a liquidity crisis.
Banking regulators are now seeking to speed up loan approvals for housing projects under a “whitelist” mechanism that came into effect last week, sources said, a request first reported by Reuters.
The people spoke on condition of anonymity because they were not authorized to speak to the media about the matter.
Banking regulator the National Financial Regulatory Authority (NFRA) did not respond to a Reuters request for comment.
Banks have been reluctant to make new loans for real estate projects, with most extending the maturities of existing loans or cutting interest rates, developers and banks said in statements.
The “whitelist” program targets state-backed and private developer projects that require 1.5 trillion yuan ($207.51 billion) in new funding, one of the people said.
In a directive last week, the regulator gave banks to complete approval and issuance of all loans by the end of June, a second source said.
“Banks reiterated that they should treat projects supported by private and state-owned developers equally,” the official added.
The directive followed statements from some bankers.
“Banks are well aware that they can lose money on these (real estate) loans, but the decision is entirely up to them,” said Christopher Bedder, deputy director of China research at Gabekal Dragonomics. No,” he said.
The “white list” announced in January allows city governments to recommend suitable housing projects to banks for financial support and coordinate with banks to meet the needs of the projects.
Chinese banks’ reluctance to make new loans to the ailing real estate sector stems from concerns about the impact on banks’ asset quality and profitability, with already low loan demand and a weak economy. has been hit by.
Three of the country’s top five state-owned financial institutions are expected to report a contraction in net profits in 2023, when their results begin this week, while two others will report slower profit growth, according to LSEG data. It is expected.
The data showed that net interest margin (NIM), a key measure of profitability, was below 1.8%, the standard that regulators consider necessary to ensure reasonable profitability, and between 1.29% and 1.74%. It is estimated that the range will be further compressed to an all-time low.
Faced with profitability pressures, three private developers said banks initially only adjusted repayment plans on existing loans as part of a “whitelist” mechanism, with all loans issued only to projects in large cities. It is said that it was done.
But regulators changed their tune, and an executive at a private developer said on condition of anonymity that banks had told him new financing would be available as early as the end of this month.
