EXCLUSIVE Chinese regulator launches new investigation into banks’ exposure to home loans – sources

A man works at an apartment building construction site in Beijing, China July 15, 2022. REUTERS/Thomas Peter

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SHANGHAI/BEIJING, Aug 18 (Reuters) – China’s banking regulator is reviewing the home loan portfolios of some local and foreign lenders to assess systemic risks, sources familiar with the matter said, as the sector crisis real estate worsens and weighs heavily on the economy.

As part of its assessment, the China Banking and Insurance Regulatory Commission (CBIRC) is looking at the exposure of banks’ loan portfolio to developers to find out whether such credit decisions have been made according to the rules, the ICRC said. one of the sources.

The aim is to gauge the risks to the financial system from the current housing sector turmoil in the world’s second-largest economy, two of the sources said. It was not immediately clear what action the regulator might take after the investigation.

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The probe is different from the routine self-reporting the regulator requires from banks, the sources said.

China’s economy narrowly avoided contracting in the second quarter as widespread COVID-19 lockdowns and a slump in the real estate sector severely hurt consumer and business confidence. July data was much weaker than expected, with further signs of deterioration in the housing and construction markets. Read more

The CBIRC did not respond to requests for comment from Reuters.

All sources declined to be identified due to the sensitivity of the issue.

The latest survey comes as policymakers try to stabilize the housing sector, which accounts for a quarter of the economy, after a series of defaults among developers on their bond repayments and a slump in home sales.

The survey underscores challenges for Beijing in its efforts to encourage banks to provide new loans to struggling developers, while managing lending risk.

Home loans accounted for 25.7% of total banking sector credit in China at the end of June, according to central bank data. Total outstanding banking sector loans stood at 206 trillion yuan ($30.3 trillion) at the end of the first half.

While Chinese banks have the most exposure to local developers and buyers, foreign lenders, including HSBC Holdings (HSBA.L) and Standard Chartered (STAN.L), lend to property companies.

Reuters could not determine whether HSBC and StanChart, two of the largest foreign banks in China, are part of the latest investigation. HSBC and StanChart declined to comment.

The debt crisis in China’s property sector has worsened in recent weeks after a growing number of homebuyers threatened to stop paying mortgages on stalled property projects, deepening a crisis that could lead to the social instability. Read more

The CBIRC is also asking certain developers for details of their cash positions and the source of money for debt repayment, a third banking source said.

Beijing’s launch of strict leverage rules for developers in recent years has caused cash flow problems for many, leaving some scrambling month-to-month to pay upcoming debt and sometimes failing.

“The regulator wants to know how to adjust policy and assess risk,” said a banker at a foreign lender, who was asked for property-related loan documents over the past two weeks.

The investigation is very detailed and loan officers are approached repeatedly, sometimes over several weeks, for additional documentation on loans to specific promoters, two of the sources said.

A potential increase in mortgage defaults increases risks for banks and developers.

“The risk of new NPLs (non-performing loans) will remain a threat to banks’ asset quality,” ratings agency Moody’s said in a June note.

Commercial banks’ non-performing loan ratio stood at 1.67% at the end of June, down from 1.73% at the start of this year, according to CBIRC data, although many analysts believe the actual figure is much higher. higher.

New bank lending in China fell more than expected in July, while general credit growth slowed as new outbreaks of COVID-19, worries about jobs and the housing crisis made businesses and consumers reluctant to take on more debt. Read more

Credit problems in the real estate sector are likely to seep into secondary industries such as asset management companies, private construction firms and small steel makers, Fitch Ratings said in an August note.

($1 = 6.7890 Chinese Yuan)

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Editing by Sumeet Chatterjee, Jacqueline Wong and Kim Coghill

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