Industrial Bank Co. (601166) suspended loans to some Chinese property developers and tightened lending to real estate-related industries including steel and cement, Shanghai Securities News reported.
Industrial Bank issued a notice before the Chinese Lunar New Year to suspend mezzanine financing and supply-chain financing in the real estate sector until the end of March, according to the report, which cited an image of the notice circulated online. China’s Lunar New Year holiday began Jan. 31 this year. A press officer at Fuzhou-based Industrial Bank said he couldn’t immediately confirm the notice.
Shares of property developers fell on concern that the curb may further limit their funding sources and push up borrowing costs as Chinese policy makers crack down on shadow banking. Industrial Bank may also restrict funding to local governments that rely on less-regulated financing, according to Huang Jie, an analyst at China International Capital Corp.
The move “is mainly attributable to falling risk appetite rather than regulatory guidance,” Huang wrote in a research note today. “We do not rule out that it will likely tighten financing related to local governments in the future.”
China Vanke Co. (000002), the nation’s biggest listed developer, dropped as much as 7.5 percent in Shenzhen and traded 6.2 percent lower at 11:30 a.m. local time. Poly Real Estate Group Co. (600048) lost 8.2 percent in Shanghai.
Shares of Chinese banks also declined on concern non-performing loans will increase as developers struggle to repay debts. Industrial Bank fell 3.2 percent in Shanghai, while China Minsheng Banking Corp. (1988) dropped 4.7 percent in Hong Kong.
Lenders in China are trying to contain soured debt that threatens to dent profit growth as the world’s second-largest economy slows. Non-performing bank loans have increased for nine quarters to the highest level since the 2008 global financial crisis, regulatory data show.
Chinese banks had up to 200 billion yuan ($33 billion) of mezzanine financing in 2013, accounting for 2 percent of the nation’s annual property investment, CICC’s Huang estimated. Real estate mezzanine financing makes up 10 percent to 20 percent of annual property investment, with trust firms and private equity funds contributing the most, Huang said.
Industrial Bank, part owned by Hang Seng Bank Ltd., has been among the most aggressive in real estate and local government financing. Exposure to those two sectors on and off its balance sheet accounted for about a third of its total assets by the end of June, the second-highest among China’s publicly traded banks, according to CICC data.
Mezzanine financing in the property industry involves giving a loan to a developer while an affiliate of the bank buys a stake in the firm and sells it back at a later date. It is often structured in a way that makes it look like an equity investment rather than a loan.
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