China’s banking regulator told lenders to push developers for faster home sales, citing signs that credit quality is worsening, a person with knowledge of the matter said.
The China Banking Regulatory Commission told lenders they should also demand more collateral, or tell developers to sell projects or stakes, if the banks predict they’ll have difficulty repaying loans due within 12 months, the person said, asking not to be identified because the instructions aren’t public.
Mortgages and developer loans classified as “special-mention,” or those at risk of souring, started to rise recently, the person said. Lack of funding, high leverage and a peak of loans maturing have increased the risk that some developers’ financing chains may collapse, the CBRC told lenders, according to the person.
Developers are facing “significant liquidity issues,” KPMG LLP said last month. Housing sales by area dropped 7.5 percent in the first seven months as the government enforced restrictions to stem speculation, which Premier Wen Jiabao has said will remain in place to keep property affordable.
“We can’t rule out the possibility that very small developers may get into trouble if policy becomes unexpectedly tight, but the regional bellwethers and listed companies should be OK,” Dai Fang, a Shanghai-based analyst at Zheshang Securities Co., said by phone. “Sales will most likely rise at a stable pace” in the rest of the year.
A press official for the Beijing-based regulator, who asked not to be identified because of the CBRC’s rules, declined to comment.
A gauge tracking Shanghai-listed property shares tumbled 0.7 percent at 1:03 p.m. China Vanke Co., the nation’s biggest publicly traded developer, fell 1.3 percent in Shenzhen to 8.53 yuan, after rising as much as 0.7 percent.
Lenders were also told at the end of last month they should enhance monitoring of developers’ cash flows, the person said. The CBRC additionally warned that risks may be obscured because some real estate companies obtained funding through personal loans or borrowing by affiliated businesses after bank credit tightened, the person said.
The regulator told banks that risks in lending to local government financing vehicles remain prominent, the person said. A small number of lenders’ outstanding loans to LGFVs rose this year, violating a CBRC requirement, while some banks continued granting credit to borrowers they had disqualified, the person said.
Moody’s Investors Service estimated in May that 29 Chinese developers on its rating list, including Hopson Development Holdings Ltd., Greentown China Holdings Ltd. and Shanghai Zendai Property Ltd., need to repay 159 billion yuan ($25 billion) of short-term debt this year, the most in data going back to 2008.
Greentown, a developer based in the eastern Chinese city of Hangzhou, in June agreed to sell stakes in nine projects for 3.37 billion yuan to Sunac China Holdings Ltd. to help repay loans and boost capital.
Home transaction volume may fall this month from July, Centaline Group, parent of China’s biggest real-estate brokerage, said in a report e-mailed Aug. 13. Developers, with stockpiles of completed homes equivalent to more than 10 months’ sales, still need to stimulate demand even as sentiment improves after the central bank cut interest rates to stem an economic slowdown, according to the report.
Chinese banks’ bad loans increased for a third straight quarter in the three months ended June 30, rising by 18.2 billion yuan, the CBRC said Aug. 15. That’s the longest streak of deterioration in eight years, highlighting pressures on asset quality and profit growth as the economy weakens.
Shanghai Pudong Development Bank Co. said this week non-performing loans, or those overdue for at least three months, surged more than 30 percent in the first half to 7.7 billion yuan as of June 30, mainly because of rising defaults in the eastern Chinese cities of Wenzhou and Hangzhou. Special-mention loans, normally overdue for fewer than 90 days, jumped 28 percent in the same period, the bank said.
— With assistance by Dingmin Zhang