China is pressing banks to expedite the approval process for new loans directed at the beleaguered private developers, marking a significant pivot in Beijing's strategy to bolster homebuyer confidence and stabilize a market critical to the nation's economic health, according to Reuters. This push for rapid financing is part of a broader initiative employing the "whitelist" mechanism, a recent policy tool designed to alleviate the sector's acute liquidity constraints and stimulate residential purchases amid a persistent downturn in new home prices.
The caution exhibited by leading domestic banks in increasing credit lines to the property sector, despite persistent encouragement from the central government, underscores the depth of the crisis that has gripped the industry since a 2021 regulatory crackdown on excessive borrowing among developers. "Most top domestic banks have so far shied away from significantly bolstering credit exposure to the crisis-hit sector despite repeated nudges from Beijing," sources familiar with the matter revealed, highlighting the banks' hesitance to expose themselves further to a sector mired in uncertainty.
The "whitelist" mechanism, unveiled in January, authorizes city governments to identify and endorse residential projects that merit financial backing, facilitating a more coordinated effort between banks and developers to meet the funding requirements of pivotal housing projects. According to insiders, "The banking regulator wants faster loan approvals for residential projects under the 'whitelist' mechanism, with effect from last week," emphasizing the urgency of the situation.
Yet, the banks' reluctance is not unfounded, given the looming concerns over deteriorating asset quality and diminishing profitability within the sector. "The banks are very much aware that they could lose money on these (property) loans. But the decision isn't entirely up to them," Christopher Beddor, deputy director of China research at Gavekal Dragonomics, pointed out, shedding light on the complex interplay between regulatory directives and banks' risk assessments.
This regulatory pressure comes at a time when the profitability of Chinese banks is already under strain, with projections indicating that three of the nation's top five state-owned lenders may report a contraction in net income for 2023. The anticipated squeeze in net interest margins (NIM) to record lows exacerbates the dilemma faced by banks, as they navigate the tightrope between supporting national economic priorities and safeguarding their financial health.
Developers, particularly in the private sector, have expressed cautious optimism in light of the recent regulatory push, with some reporting a change in banks' attitudes towards extending new credit. An executive from a private development firm shared, "The firm was told by banks that new credit could be granted as soon as by the end of this month," signaling a potential thaw in the credit freeze that has plagued the sector.
As China endeavors to chart a course out of the property sector's quagmire, the effectiveness of the "whitelist" mechanism and the expedited loan approvals will be closely watched. The delicate balance between revitalizing a cornerstone of the economy and preserving the financial system's integrity remains a formidable challenge for policymakers and financial institutions alike.
