China pushes banks to speed approvals of new loans to private developers, say sources

[March 25, 2024]  HONG KONG/BEIJING (Reuters) - Chinese regulators are pushing banks to speed up approvals of new loans to cash-starved private property developers, people with knowledge of the matter said, a bid to revive homebuyer sentiment that risks denting lenders' asset quality.

The effort uses the "whitelist" mechanism, Beijing's latest support measure aimed at easing the sector's unprecedented liquidity squeeze and spurring home purchases, as new home prices fell in February for an eighth straight month.

Most top domestic banks have so far shied away from significantly bolstering credit exposure to the crisis-hit sector despite repeated nudges from Beijing, dashing hopes of a revival in an industry crucial for the economy.

The property sector in the world's second-largest economy has lurched from one crisis to another since 2021, after a regulatory crackdown on developers' high leverage led to a liquidity crisis.

Now the banking regulator wants faster loan approvals for residential projects under the "whitelist" mechanism, with effect from last week, the sources said, a demand that Reuters is reporting for the first time.

The sources spoke on condition of anonymity because they were not authorized to speak to the media on the subject.

The banking regulator, the National Financial Regulatory Administration (NFRA), did not respond to a Reuters request for comment.

Developers and bank statements say banks have been reluctant to grant new loans to property projects, while mostly extending maturity and lowering interest rates of existing loans.

The "whitelist" program covers projects of state-backed and private developers that need fresh financing of 1.5 trillion yuan ($207.51 billion), one of the sources said.

In last week's directive, the regulator gave banks until the end of June to finish approval and issuance of all loans, the second source said.

"It reiterated that banks should treat projects backed by private and state-owned developers equally," the source added.

The instruction followed statements by some bankers that they preferred to extend credit mainly to the projects of state-owned firms.

A woman walks near a construction site of apartment buildings in Beijing, China, July 15, 2022. REUTERS/Thomas Peter/File Photo

"The banks are very much aware that they could lose money on these (property) loans. But the decision isn't entirely up to them," said Christopher Beddor, deputy director of China research at Gavekal Dragonomics.

Launched in January, the "whitelist" enables city governments to recommend suitable residential projects to banks for financial support, and to coordinate with them to meet project needs.

PRESSURE ON PROFITABILITY

Chinese banks' aversion to extending fresh credit to the ailing property sector stems from worries over the impact on their asset quality and profitability, which has already been hit by tepid loan demand and the sputtering economy.

Three of the nation's top five state-owned lenders are set to report shrinking net income in 2023 when the sector kicks off its earnings parade this week, while the other two are expected to report subdued profit growth, LSEG data shows.

A key gauge of profitability, net interest margins, (NIM), are estimated to be further squeezed to record lows ranging from 1.29% to 1.74%, the data showed, below a threshold of 1.8% that regulators see as necessary to reasonable profitability.

Faced with profitability pressure, initially, as part of the "whitelist" mechanism, banks just adjusted repayment plans on existing loans, three private developers said, and all the loans were issued only to projects in bigger cities.

But in a change of attitude after the regulator's instruction, an executive at a private developer, speaking on condition of anonymity, said the firm was told by banks that new credit could be granted as soon as by the end of this month.

(Reporting by Hong Kong and Beijing Newsroom; Editing by Sumeet Chatterjee and Clarence Fernandez)

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