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Chinese regulator warns small banks against continuing real estate lending

Chinese banking regulator has warned the country small banks against the rush to increase their lending to the real estate sector after the capping of large banks’ lending to the highly leveraged sector had some initial success.

the China Banking and Insurance Regulatory Commission (CBIRC) will pay special attention to the growth of loans in the real estate sector, and it will identify and closely monitor banks with a high proportion of such loans in their portfolios, said Liu Zhongrui, deputy director of the statistical information department and CBIRC Risk Watch Tuesday.

“Some medium to small regional banks have entered the competition for home loans, while the larger public banks are cutting back on their loans,” he said. The regulator will adopt “stricter measures” against lenders who ignore its warning. “For banks with a relatively high ratio of newly added home loans, we will put them in a separate list and ask them to control the growth rate of home loans judiciously,” Liu added.

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The warning came as Beijing tries to maintain its grip on China fueled by debt real estate sector. He wants to cool the real estate sector and guard against systemic risks in the financial system resulting from excessive mortgage lending and speculative purchases, especially at a time when economic growth in China faces uncertainties related to the coronavirus pandemic, despite four consecutive quarters of growth since the second quarter of last year.

The excess flow of funds into the real estate sector has started to recover, said Liang Tao, vice president of the regulator.

Loans to the real estate sector recorded their weakest growth in eight years in April, increasing 10.5% year-on-year. Bank lending to the sector since the start of the year has also been lower than all other sectors, Liang said.

The number of real estate trust and wealth management products supported by real estate projects also declined, with the latter declining by 36%.

“We have seen a certain improvement in the concentration of mortgage loans following the introduction of the merger management system“said deputy director Liu. The system, introduced on January 1, restricts bank lending to the real estate sector based on capitalization. Lenders are organized into five levels, with well-capitalized level 1 banks being able to Lend the most At the other end of the spectrum, small, underfunded Tier 5 lenders, who could serve villages or local communities, are allowed to lend the least.

The concentration of loans to the appropriate sector has fallen in the Chinese top six state-owned lenders, which are The Bank of China, Industrial and Commercial Bank of China, Construction Bank of China, Agricultural Bank of China, Bank of Communications and Postal Savings Bank of China, Liu said.

Four decades of rapid economic growth have transformed collective housing from the Mao Zedong era into some of the world’s tallest residential towers, huge housing estates and lavish villas. The Chinese real estate market is the largest in the world, with the value of new home sales surpassing $ 2.7 trillion last year.

Average prices have increased quintupled over the past 20 years, making Shanghai, Shenzhen and Beijing the most expensive cities in the world, according to CBRE’s 2020 Global Home Price Survey.

But the growth of China’s real estate sector has been financed primarily by borrowing, in part because Beijing wants to control oversupply and has banned developers from selling off-plan. The industry increasingly relies on bank loans, bonds and any other financial instrument that can be used to finance construction activity and the purchase of land.

In the first quarter of this year, bank loans to the real estate sector totaled 50.03 trillion yuan ($ 7.8 trillion), an increase of 10.9 percent year-on-year. Banks added loans worth 1.67 trillion yuan in the quarter, according to data from China’s central bank.

The total loan balance owed by real estate developers maturing this year rose 36 percent to 1.2 trillion yuan from last year, according to the Beijing-based Beike Research Institute.

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