Chinese authorities actively encourage banks to expedite the loan approval process directed at financially strapped private real estate developers. This move aims to boost confidence among homebuyers and stimulate property purchases amidst a continuing decline in new home prices, which marked their eighth consecutive month of downturn in February.
Chinese Government Is Pushing Banks To Lend to Private Developers
Despite Beijing’s efforts to rejuvenate the industry through a “whitelist” approach designed to alleviate the sector’s liquidity challenges, major domestic banks have remained cautious, limiting their credit extension to the beleaguered industry, vital for the nation’s economic health.
Since 2021, the real estate market in China, the world’s second-largest economy, has faced successive challenges triggered by regulatory measures to curb developers’ excessive borrowing, leading to a severe liquidity crisis.
According to sources, the banking regulator introduced a policy last week to accelerate loan approvals for housing projects listed in the “whitelist” initiative. However, these individuals requested anonymity due to restrictions on public disclosures. The National Financial Regulatory Administration (NFRA) has not commented on these developments.
Reports indicate banks have hesitated to approve new loans for real estate ventures, opting to extend or reduce existing loan terms. The “whitelist” scheme aims to support projects by state-supported and private developers needing additional funding totalling approximately 1.5 trillion yuan ($207.51 billion).
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Recently, banks were instructed to complete all loan approvals and issuances by the end of June, emphasising equal treatment for projects regardless of the developer’s ownership model. This directive comes amid preferences some banking officials express for financing projects affiliated with state-owned entities.
Experts like Christopher Beddor of Gavekal Dragonomics note the banks’ concern over potential losses from real estate loans, highlighting the tension between regulatory directives and financial prudence. The “whitelist” policy, introduced in January, facilitates local governments in identifying residential projects for banking support, emphasising collaboration to address project financing needs.
Chinese banks’ reluctance to issue new loans to the distressed property sector is influenced by fears of deteriorating asset quality and profitability amid weak loan demand and economic challenges. Upcoming earnings reports from the country’s largest state-owned banks are anticipated to reveal a contraction in net income for some and modest profit growth for others in 2023, according to LSEG data.
