China’s big banks slow lending pace, devote 90pc of new mortgages to first-time buyers
China’s big four state-owned banks, which collectively grant more than half of the nation’s mortgage loans, significantly slowed their lending pace in the first half of this year in response to a government call, and devoted 90 per cent of their new mortgages to first-time homebuyers.
In the first half the four banks – Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China – extended about 1.3 trillion yuan (US$197.6 billion) of new mortgages, according to aggregate numbers obtained from their interim results. The growth rate of outstanding mortgages tapered off substantially.
Three of the four – ICBC, BOC and ABC – said they directed at least 90 per cent of new mortgages to first-time buyers, while CCB didn’t disclose the ratio. Analysts point out this is a strategy at odds with profit-driven principles as first-time buyer mortgage rates are much lower than second and third-time buyer rates.
“In the first half, first-time buyer mortgages accounted for 92 per cent of our total mortgages, the highest among peers,” Wang Wei, a vice president with ABC, said at a results press conference on Thursday. “We maintain a rate for first-time buyers no lower than the benchmark rate, while the rate for second-time buyers is 10 per cent over benchmark, and a 20 per cent premium for those in overheating cities.”
The scenario is in stark contrast with just eight months ago when looser monetary policy and surging demand for homes amid rising prices saw major banks spare no effort to lend to homebuyers.
In 2016 new mortgage granted by all four banks accounted for more than half of their total new loans of 1.377 trillion yuan. BOC, the smallest of the big four and not typically known for its domestic mortgage lending business, allocated 81.8 per cent of its total new loans that year to homebuyers, the highest proportion among the four.
The banks’ mortgage business cooled off dramatically after Beijing officials repeatedly lectured that the “home is for personal living, not for speculation” and amid the government’s “window guidance” to banks to extend mortgages at a slower pace.
BOC’s outstanding mortgage growth in the first half was 9.28 per cent, down from 16.98 per cent a year ago while ABC saw the same rate tumble from 32.8 per cent to 11.6 per cent.
ICBC officials said they focused less on mortgages for buyers in first and second-tier cities and more on those in third and fourth-tier cities, and highlighted that the proportion of mortgages in 16 hotspot cities declined by 13 percentage points.
Nationally, mortgages outstanding grew 30.8 per cent year on year in the first half to 20.1 trillion yuan, according to the People’s Bank of China, compared to 35.7 per cent by the end of March.
A year ago, banks were much more keen to court home buyers as mortgages are considered safe with the lowest delinquency ratio among all assets.
Last year, Wang Hongzhang, chairman of CCB, vowed to bolster the bank’s mortgage business in the second half of 2016 after lending a record 407.8 billion yuan in mortgages in the first half to “help trim China’s housing inventory”. Nowadays, banks are shying away from this strategy as asset quality is steadily improving, funding costs are rising and the state is encouraging credit flow to other sectors.
Zhou Xuedong, an official with the PBOC’s Beijing branch, said since January the growth of mortgages have been included in the central bank’s “macro-prudential assessment”, a requirement that banks must meet. This has resulted in banks across Beijing strictly curbing the ratio of mortgages in all new loans.
Consequently, home buyers complain that mortgage rates are rising and becoming more difficult to obtain. According to Rong360, a loan rate monitoring agency, the national average rate for first time buyers in July reached 4.99 per cent, up 12.4 per cent over a year ago. The mortgage rate for second home buyers was 5.47 per cent, up 1.5 per cent over a year ago.