Real Estate Lending Caps Will Stay in Place, Central Bank Says

China’s tightened management mechanism for banks’ real estate lending will stay in place as part of normalized policy, the central bank said Friday in its 2021 financial stability report.

The mechanism was introduced in December by the People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) to help prevent systemic risks. The policy capped banks’ outstanding property loans as a proportion of total loans and their ratio of outstanding mortgages to total loans.

The rules took effect Jan. 1. Banks were granted grace periods from two to four years for compliance. The proportion of outstanding real estate loans in Chinese lending portfolios gradually declined from 28.7% in December to 27.4% in June, according to a Soochow Securities Co. Ltd. report dated July 25. Some banks stopped offering loans to homebuyers since May, according to Beike Research Institute.

As large and medium-sized banks reduce their real estate exposure to meet the requirements, some smaller banks are moving to grab market share. As of the end of June, the amount of mortgage loans in Bank of Ningbo Co. Ltd. (002142.SZ), for example, expanded by 46% compared with the beginning of 2021.

The central bank together with the CBIRC will continue to monitor implementation of the policy and urge banks to achieve the goals in an orderly manner under to the grace period plan, according to the financial stability report.

After the introduction of the real estate loan concentration management system, the local branches of the PBOC and the CBIRC determined the caps for banks within their jurisdiction and established transitional plans for lenders that were out of compliance, according to the report.

For big state-owned banks, the ratio of outstanding property loans to total loans is limited to 40% and outstanding mortgages as a proportion of total loans to 32.5%. For smaller banks, the caps are lower. The strictest limits apply to small village banks, which can lend only 12.5% of their portfolios to real estate developers and 7.5% to homeowners.

Real estate loans expanded steadily in the second quarter, central bank data showed. At the end of June, outstanding real estate loans of major financial institutions reached 50.8 trillion yuan ($7.87 trillion), up 9.5% from the same period a year ago and 1.4 percentage points lower than that at the end of March. The outstanding amount of mortgage loans was 36.6 trillion yuan, up 13% year-on-year and 1.5 percentage points lower than at the end of March.

The CBIRC will identify and closely monitor banks with high proportions of new property loans and urge them to rationally control the growth of real estate loans, said Liu Zhongrui, a deputy director at the CBIRC statistics department, in a June press briefing.

Under the tightened credit environment, China’s home price growth slowed further in July. New-house prices across China’s four first-tier cities — Beijing, Shanghai, Shenzhen and Guangzhou — rose 0.4% month-on-month in July, 0.3 of a percentage point slower than in June, data from the National Bureau of Statistics shows.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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