China Banking Regulator Launches Crackdown on Property Lending in 32 Cities

Sales for China’s top 100 developers fell 29 percent for the first seven months of 2019, as the government has continued a year-long clampdown on the housing market, and that trend could be set to continue, as the country’s top financial regulator launches a new campaign to control lending for real estate.

The China Banking and Insurance Regulatory Commission (CBIRC) has issued a circular outlining plans for a targeted inspection in 32 cities including Beijing, Shanghai and Shenzhen, to ensure that banks are lending according to official guidelines for mortgages and loans to developers, according to a report by the official China Securities Journal.

As of the time of publication, CBIRC has not yet updated its website with the new release.

Looking Out for Risky Lending

The circular named the 32 cities to be inspected, with the four first tier cities of Beijing, Shanghai, Guangzhou and Shenzhen all making the list. Also to be targetted are the provincial capitals of Nanjing, Chengdu, Fuzhou and Xi’an, while the provincial level cities of Chongqing and Tianjing also made the roster. The wealthy Yangtze River Delta centres of Suzhou, Wuxi and Ningbo were also to be inspected, along with Xiamen in Fujian province and Qingdao in Shandong.

The CBIRC said that its inspection, which is believed to target at least 75 banks, will focus on institutions with the largest scale lending to the real estate sector and having the greatest exposure to risk related to real estate businesses. These risks include having provided large loans to developers or having supported development projects which target fast-paced sales.

The inspection will cover all related business dated from 30 June 2018 to 30 June 2019, and local CBIRC branches have been given instruction to expand the time frame depending on circumstances.

In May the regulator had issued a document listing numerous instances of illicit lending to the real estate sector, including providing illicit loans to fund land purchases by developers, lending to non-eligible developers and allowing homebuyers to borrow money for housing down payments.

The regulator is said to be scrutinising bank records and practices for illicit activities in including provision of loans to ineligible companies or projects, as well as inspecting the implementation of differentiated credit policies for individual housing mortgages.

Keeping the Lid on Real Estate as Money Supply Grows

The CBIRC’s move came as the People’s Bank of China earlier this month called for banks to keep their loans in the property sector at a reasonable level as the central bank increases credit support for troubled sectors and key industries amid slowing economic growth.

Banks should adhere to the principle of “houses are for living in, not for speculation,” and should adjust and optimise their credit structures while implementing long-term mechanisms to maintain the sound development of the real estate market, the PBOC stressed.

In June, Bank of Beijing, a guarantor of a loan by Citic Guoan Group, said that it had helped the conglomerate, which is 22 percent owned by China CITIC Group, repay RMB 2.5 billion ($364 million) in debt, raising concerns about risk management practices at regional banks.

Beijing has been focusing on shrinking the shadow-banking system, where credit decisions were made with less regulatory oversight and where it has been easier for businesses to build up unsustainable leverage.

Property Lending Already Slowing

Earlier data showed China’s loans to the real estate sector grew at a slower pace in the first half of this year as government purchase restrictions remain in place in major cities following a campaign against home price inflation which started in June last year.

At the end of the second quarter, the outstanding loans to China’s property sector stood at RMB 11.04 trillion (about $1.57 trillion), up 14.6 percent year on year, according to data from the central bank. Local currency loans to the real estate industry had grown 20 percent in 2018 compared to the previous year.