Journalist of the Securities Daily learnt that in a bid to bring regulation over the real estate industry into practice, control business growth within reasonable range and effectively alleviate the risks brought by high loan concentration in the industry, the China Banking Regulatory Commission (CBRC) recently issued a notice proposing special inspections over banking financial institutions in 16 cities where housing prices rise rapidly.
It is learnt that the special inspections will cover areas like personal housing mortgage loans, real estate development loans, and whether financing funds have entered the real estate field against regulations. The aforesaid 16 cities are Beijing, Shanghai, Guangzhou, Shenzhen, Xiamen, Hefei, Nanjing, Suzhou, Wuxi, Hangzhou, Tianjin, Fuzhou, Wuhan, Zhengzhou, Jinan and Chengdu.
The CBRC requires inspections over the business connected to real estate industry of the banking financial institutions by end September 2016 in aforesaid 16 cities. The time span can be extended forwardly or backwardly according to real situation. Local offices of the CBRC are required to submit special inspection reports before Dec. 5.
Fu Lichun, chief research officer with Lianxun Securities, told the journalist that the special inspections are quite goal-oriented. Efforts made in the inspections of loans related to the real estate industry will be great and the coverage will be quite wide. It can be seen that the inspections will be strict. Relevant real estate loans in the banking system will be checked in a big way, and potential risks will be cleared up. Meanwhile, schemes will be proposed for potential problems resulted from nonstandard behaviors and operations. Taking preventive measures before outburst of risks will help to standardize relevant business of banks.
Huang Zhilong, director with Macroeconomic Research Center under Suning Institute of Finance, told the journalist that firstly, in the first three quarters of 2016, especially since the second half, the scale of personal housing mortgage loans and real estate development loans completely dominate the loan business of the whole banking industry, especially that personal housing mortgage loans in the household sector keep setting new highs. Even if in October, personal housing mortgage loans in the household sector still account for around 70 percent of the total loans. Concentration of loans offered by banks to the real estate industry is largely increased.
Secondly, China’s major cities experienced large housing price hike in the first three quarters. Housing price hike in some second-tier cities even outstrips that of first-tier cities. As housing price bubbles and risks in second-tier cities largely grow, risks of real estate loans offered by commercial banks in these cities climb too.
Thirdly, funds of banks flow to the real estate market through channels like trusts and financing business against regulations in recent years, largely exacerbating the risks faced by banks.
Recently, regulators tend to tighten up supervision over the credit and loan business of the real estate industry. Shang Fulin, chairman of the CBRC, emphasized on a meeting held in middle September that more efforts should be made in the credit and loan stress testing and risk testing of the real estate industry. On the Q3 economic and financial trend analysis meeting held on Oct. 21, the CBRC proposed again to strictly control the financial business risks of the real estate industry, including that financing funds of banks that enter the real estate field against regulations should be strictly controlled.
In the eyes of Huang, strict investigation over the funds of banks flowing to real estate market against regulations will help to control the financial risks of the banking industry. Meanwhile, the CBRC’s requirement on strict control of loans for the real estate industry offered by the banking industry will bring great financial pressure to the real estate market in Q4 and 2017. The real estate market will also go through the removal of leverage and foaming.
Translated by Jennifer Lu