China's regulator asks smaller banks to restrict property loan growth

Credit: REUTERS/CHINA STRINGER NETWORK

China's top banking watchdog has asked smaller banks to restrict their property loan growth after some took advantage of tightly regulated big lenders, as regulators remain serious about tackling financial risks in the property sector.

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BEIJING, June 1 (Reuters) - China's top banking watchdog has asked smaller banks to restrict their property loan growth after some took advantage of tightly regulated big lenders, as regulators remain serious about tackling financial risks in the property sector.

The banking regulator will pay high attention to the rebound of property loans, and list and closely monitor banks with a high proportion of property loans in their new loans, Liu Zhongrui, an inspector at the China Banking and Insurance Regulatory Commission's (CBIRC) statistic department, told reporters in Beijing on Tuesday.

The regulator will urge those banks to meet the requirement of curbing property financing and "reasonably" control their property loan growth, Liu added.

"We'll take stricter measures on those fail to meet the requirement on time," Liu said.

Chinese authorities have been taking a series of measures to guard against debt risks in the China's overheated property market. Nearly 30% of outstanding loans with China's financial institutions were property loans by the end of September, according to previous central bank data.

Property loans with banks grew by 10.5% year-on-year in the first four months in 2021, the slowest four-month growth in the past eight years, said Liang Tao, vice chairman of the CBIRC.

The proportion of property loans to total loans also declined at country's top six state lenders during the same period, and the size of property-linked banking investment reduced too, Liang added.

The problem of excess flows of funds into the property market has "started to see a turnaround", Liang said.

But the regulator has also noticed a rapid growth of property loans at some local small and medium-sized lenders as big banks were required to cap the ratio of outstanding property and mortgage loans to total loans from January.

For China's big four banks, along with China Development Bank, Bank of Communications and Postal Savings Bank of China, the ratio of outstanding property loans to total loans was capped at 40% and their outstanding mortgages as a proportion of total loans, was capped at 32.5%, according to a guideline issued by the central bank.

For smaller banks, requirements varied. The PBOC said the requirements could be adjusted upwards or downwards by 2.5 percentage points depending on the region's economic performance.

China saw a steady decline in its macro leverage ratio of the real economy, or how much the overall real economy is financed on debt, which dropped by 3.6 percentage points year-on-year in the first quarter of this year, Liu said.

(Reporting by Cheng Leng, Zhang Yan and Ryan Woo; editing by David Evans)

((Zoey.Zhang@thomsonreuters.com;))

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