Shanghai tightens regulation of mortgage loans
The Shanghai Office of the China Banking and Insurance Regulatory Commission has issued a notice, calling on banks within its jurisdiction to strictly implement the central government’s regulatory caps on banks’ exposure to the property sector and mortgage loans.
Commercial banks should obey the regulatory requirements on property-related lending, carry out differentiated housing-credit policy, and strictly review their business on minimum down payment ratio, debt repayment income ratio and loan restrictions.
Banks should also avoid exceeding the limits on property lending, and keep a stable share of property lending in their loan mixes, the notice said.
Larger state banks are required to limit their outstanding property lending and mortgages to 40 percent and 32.5 percent of their total loans. Much smaller rural banks are subject to caps of 12.5 percent and 7.5 percent, respectively, according to a policy jointly issued by the People’s Bank of China and the China Banking and Insurance Regulatory Commission at end-2020.
The regulation took effect on January 1 this year.
There will be a transition period of two years for banks that have breached the caps by less than 2 percentage points, or four years if they exceed the caps by 2 percentage points or more.
For banks whose real estate loans exceed the requirements, the Shanghai Office said it will strengthen supervision “in a targeted manner” in the transitional period.
In addition, banks are called on to make better qualification examinations and credit management of borrowers.
They should strengthen the management of property-related loans to prevent consumer loans, personal business loans and other credit funds from being illegally diverted to the real estate sector, the Shanghai bureau of CBIRC noted.
China’s new caps on banks’ property exposure came amid an increase in the share of property lending in overall bank loans and recent signs of overheating in the property markets of some higher-tier cities, Fitch Ratings said in a recent report.
Property-related loans accounted for 28.8 percent of overall outstanding loans, including a record high of almost 20 percent from mortgages, at the end of the third quarter of 2020, the report added.
