China pushes banks to speed up approval of new loans to private developers, sources say – 03/25/2024

Chinese regulators are pushing banks to speed up approval of new loans to cash-starved private property developers, people familiar with the matter said, in a bid to revive sentiment among homebuyers who are at risk of undermine the quality of lenders’ assets.

The effort uses the “whitelist” mechanism, Beijing's latest support measure aimed at easing the sector's unprecedented liquidity crunch and boosting home purchases, as new home prices fell in February for an eighth consecutive month.

Most major domestic banks have so far avoided significantly increasing their credit exposure in the crisis-hit sector, despite repeated prodding from Beijing, dashing hopes of a crucial industry's recovery for the economy.

The real estate sector in the world's second-largest economy has lurched from one crisis to another since 2021, after a regulatory crackdown on high developer leverage led to a liquidity crisis.

Now the banking regulator wants faster loan approvals for residential projects under the “whitelist” mechanism, effective from last week, the sources said, a request Reuters reports for the first time.

The sources spoke on condition of anonymity because they were not authorized to speak to media about the matter.

The banking regulator, the National Financial Regulatory Administration (NFRA), did not respond to a Reuters request for comment.

Developers and bank statements indicate that banks have been reluctant to extend new loans to real estate projects, while extending the tenor and reducing interest rates of existing loans.

The “white list” program covers projects from private and state-backed developers that need 1.5 trillion yuan ($207.51 billion) in new financing, one of the sources said.

In last week's directive, the regulator gave banks until the end of June to complete the approval and issuance of all loans, the second source said.

“She reaffirmed that banks should treat projects supported by private and public developers in the same way,” the source added.

This instruction follows statements from certain bankers who indicated that they preferred to grant credit mainly to projects of public companies.

“The banks are very aware that they could lose money on these (real estate) loans. But the decision is not entirely up to them,” said Christopher Beddor, deputy director of China research at Gavekal Dragonomics .

Launched in January, the “white list” allows municipal authorities to recommend residential projects to banks that could benefit from financial support and to coordinate with them to meet the projects' needs.

PRESSURE ON PROFITABILITY

The aversion of Chinese banks to granting new credit to the ailing real estate sector is explained by concerns about the impact on the quality of their assets and on their profitability, already affected by weak demand for loans and the economic slowdown.

Three of the country's top five state-owned banks are expected to report a decline in net income in 2023 when the sector begins reporting results this week, while the other two are expected to report moderate profit growth, according to LSEG data .

A key indicator of profitability, net interest margins (NIM), are expected to be further reduced to record levels ranging from 1.29% to 1.74%, according to the data, below the 1.8% threshold. which regulators consider necessary for reasonable profitability.

Faced with profitability pressure, initially, under the “whitelist” mechanism, banks simply adjusted the repayment plans of existing loans, three private promoters said, and not all loans were been granted only to projects in large cities.

But in a change of attitude after the regulator's instruction, an executive from a private developer, speaking on condition of anonymity, said the company had been informed by banks that new credits could be granted from the end of this month. (Reporting by Hong Kong and Beijing newsroom; Writing by Sumeet Chatterjee and Clarence Fernandez)

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