Efforts to Revive Real Estate Sector: China Urges Banks to Speed Up Lending

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Reuters reports that China’s regulators are urging banks to expedite the approval process for new loans to private real estate developers in an effort to improve the real estate market. This initiative is part of a broader policy aimed at addressing liquidity tightening and boosting buyer confidence, as housing prices have continued to decline for the eighth consecutive month in February.

This endeavor is related to the “white list” mechanism, the latest support measure from Beijing, which includes projects by private developers with state backing and aims to provide new financing of up to 1.5 trillion yuan ($207.51 billion).

According to sources, banking regulators have issued an instruction requiring banks to complete the approval and disbursement of all loans by the end of June. However, major domestic banks have been hesitant to increase their credit exposure to the struggling real estate sector, despite encouragement from Beijing.

The real estate sector of the world’s second-largest economy has experienced volatility since 2021, following measures to tighten excessive borrowing by developers. Banks’ reluctance to expand new credit to the real estate sector stems from concerns about potential impacts on their asset quality and profits, which have already been affected by economic recession.

Data from LSEG shows that three out of five top lending institutions in China, which are state-owned, are expected to report decreased net income for 2023, while the remaining two banks predict modest profit growth. Net interest margins (NIM) are forecasted to drop to a record low level, adding further challenges to profitability.

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Nevertheless, despite initial reluctance, banks have started to show signs of complying with regulatory guidelines and granting new loans for real estate projects. An anonymous executive from a private developer revealed that banks have signaled that new credit may be disbursed by the end of this month, indicating a shift in the banking industry’s approach to supporting the real estate market.

Reference: Reuters