Unique: China regulator probes banks’ property mortgage publicity

A person works at a development website of condominium buildings in Beijing, China, July 15, 2022. REUTERS/Thomas Peter

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SHANGHAI/BEIJING, Aug 18 (Reuters) – China’s banking regulator is scrutinising property sector mortgage portfolios of some native and overseas lenders to evaluate systemic dangers, sources with information of the matter mentioned, as the true property sector’s debt disaster worsens.

As a part of their evaluation, the China Banking and Insurance coverage Regulatory Fee (CBIRC) is taking a look at banks’ mortgage guide publicity to builders to seek out out if these credit score choices had been made in accordance with the principles, one of many sources mentioned.

The intention of the newest regulatory probe is to measure dangers to the monetary system from the continued property sector turmoil on the earth’s second-largest economic system, two of the sources mentioned. It was not instantly clear what motion the regulator would possibly take after the investigation.

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The CBIRC didn’t reply to Reuters requests for remark.

All of the sources declined to be named because of the sensitivity of the matter.

The transfer comes as policymakers have been making an attempt to stabilise the property sector that accounts for 1 / 4 of the economic system after a string of defaults amongst builders on their bond repayments and a hunch in residence gross sales.

The investigation underscores the challenges for Beijing in its efforts to encourage banks to increase contemporary loans to embattled actual property builders, whereas managing lending dangers.

Property loans accounted for 25.7% of whole banking sector credit score in China as of end-June, Chinese language central financial institution information confirmed. The banking sector’s whole excellent loans was 206 trillion yuan ($30.3 trillion) on the finish of the primary half.

Whereas Chinese language banks have the largest publicity to native builders and homebuyers, overseas lenders together with HSBC Holdings (HSBA.L) and Customary Chartered (STAN.L) lend to property corporations.

HSBC and StanChart spokespeople didn’t reply to requests for remark.

The debt disaster in China’s property sector worsened in latest weeks after numerous homebuyers threatened to cease making their mortgage funds for stalled property tasks, aggravating a disaster that has already hit the economic system and will result in social instability. learn extra

The CBIRC can be asking some builders for particulars of their money positions and the supply of cash for debt repayments, a 3rd banking supply mentioned. The probe is completely different to the routine self-reporting the regulator requires from banks.

Beijing’s launch of robust leverage guidelines for builders lately has led to cashflow points for a lot of, leaving some scrambling from one month to the following to pay upcoming debt and generally failing.

“The regulator needs to know the way to tailor coverage and assess danger,” mentioned one banker at a overseas lender, who has been requested for property sector-related lending paperwork during the last couple of weeks.

The investigation could be very detailed and mortgage officers are being approached a number of occasions, generally over many weeks for added paperwork on lending to particular builders, two of the sources mentioned.

The rise in mortgage defaults raises dangers for banks and builders.

“The chance of recent NPLs (non-performing loans) will stay a risk to banks’ asset high quality,” mentioned ranking company Moody’s in a June observe.

Business banks’ non-performing mortgage ratio stood at 1.67% on the finish of June, down from 1.73% firstly of this 12 months, in accordance with CBIRC information.

New financial institution lending in China tumbled greater than anticipated in July whereas broad credit score development slowed, as contemporary COVID-19 flare-ups, worries about jobs and the property disaster made firms and shoppers cautious of taking over extra debt. learn extra

The property sector credit score hassle is prone to seeping into secondary industries equivalent to asset administration firms, privately-owned development corporations and small steelmakers, mentioned Fitch Rankings in an August observe.

($1 = 6.7890 Chinese language yuan)

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Modifying by Sumeet Chatterjee and Jacqueline Wong

Our Requirements: The Thomson Reuters Belief Ideas.

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