China’s banking watchdogs set sights on rising household debt problem

First they looked at local governments, then at major enterprises … now China’s financial watchdogs are focusing their sights on the debt problem facing the country’s households.

Guo Shuqing, chairman of the China Banking Regulatory Commission, and Pan Gongsheng, a deputy governor of the People’s Bank of China, both raised red flags this week on the sidelines of the annual gathering of the National People’s Congress in Beijing.

Guo said on Friday that curbing leverage levels held the key to tackling financial risk, one of President Xi Jinping’s top three priorities for the next three years.

China must bring household debt under control, banking regulator says

But the problem was not just at the government or corporate level, he said. The steep rise in household debt was also a major concern that merited attention.

“There has been a rapid growth in household debt, [including] borrowing to fund consumer spending, property purchases and investments,” he said. “That’s very risky.”

China was known for being a nation of savers, and that was a major benefit, Guo said, but he warned that the advantage would be lost if debt outgrew savings.

While he stopped short of recommending any measures to rein in household borrowing, he said the regulator would press on with its plans to curb debt in the corporate sector, including pushing for more restructuring and encouraging debt-for-equity swaps.

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Pan said on Friday that the central bank was also paying close attention to household debt, especially with regards to the rapid growth in mortgages, though there was no immediate cause for alarm.

According to official figures, the value of mortgage loans rose 22 per cent last year, much faster than the 12.7 per cent gain recorded for credit as a whole.

Xu Wenbing, chief banking analyst at China’s Bank of Communications, said the government would keep a tight rein on lending to property speculators.

“Some families have debts that go far beyond their repayment abilities and that poses a risk, especially amid the curbs to slow house price growth,” he said.

Banks would be become increasingly vigilant when scrutinising mortgage applications, he said.

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Meanwhile, Guo said that the banking regulator would continue to crack down on malpractice and misfeasance in the sector.

In January alone, it hit banks with fines of 791 million yuan (US$124.9 million), or more than a quarter of the 2.9 billion yuan handed out to 1,877 banking institutions in the whole of last year, and almost three times the 2016 total of 270 million yuan.

The regulator would also continue to tackle risks created in the shadow banking sector – including banks’ wealth management products, interbank activities and off-balance sheet business – and ramp up its scrutiny of trust companies and internet financing, Guo said.