China’s PBOC ‘persuades’ Shanghai banks to slow monthly mortgage growth

Mortgage growth set to slow long term amid shrinking transactions even without tighter central bank controls

PUBLISHED : Monday, 27 March, 2017, 8:01pm
UPDATED : Monday, 27 March, 2017, 11:14pm

Banks in Shanghai are slowing mortgage loan growth amid the tighter stance by the People’s Bank of China to keep deleveraging the housing market, industry sources said.

Lenders in the most populous mainland cities are being asked to scale back growth in their monthly mortgages, which means home buyers could face longer waiting times on loan approvals even though mortgage requirements remain unchanged, said sources from state-owned banks in Shanghai, quoting new guidance from the central bank. The sources declined to be named as the information is not public.

Known in China as “window guidance,” the Chinese central bank has been using the force of “moral suasion” since late 2016 to regulate the pace of credit disbursement.

The Shanghai branch of the central bank declined to comment on the issue.

However, the moves may not be welcomed by credit officers that still consider mortgages as a low-risk and lucrative business.

“We are not surprised to see a tighter hand to control mortgage growth as monetary data so far hasn’t reflected a significant drop in mortgages though home transactions have hardly been hit in the city,” said Chen Ji, a senior researcher at Bank of Communications in Shanghai. “It could contribute to the longer-than-expected waiting period [for mortgages].”

Monetary data so far hasn’t reflected a significant drop in mortgages though home transactions have hardly been hit in the city
Chen Ji, Bank of Communications in Shanghai

However, over the longer term mortgage growth is set to slow amid shrinking transactions even without the tighter controls, he said.

Mortgages in Shanghai amounted to 22.3 billion yuan (US$3.2 billion) in February, 1.1 billion yuan less than the prior month, according to central bank data. Outstanding mortgages grew by 37.4 per cent at the end of February, inching down 0.8 percentage point over the prior month.

Last year, the value of all Shanghai mortgages more than doubled year on year to 335.2 billion yuan.

Shanghai was the first among major mainland cities to exclude applicants with a borrowing history from being eligible as “first-time buyers,” which means higher down payments and interest rates for the majority of private home buyers seeking to upgrade to bigger homes.

Similar steps were taken earlier this month by cities including Beijing.

Prior to the latest moves by the central bank, lenders in Shanghai had already been under pressure as borrowers complained about the longer-than-expected mortgage application process.