PBOC deploys new system to assess macro-prudential risks in Shanghai’s property market

The People’s Bank of China is deploying a new system to assess macro-prudential risks in Shanghai’s property market, aiming to introduce the system nationwide after it is proven in Shanghai, according to a statement released by the central bank’s Shanghai headquarters on Friday afternoon.

Shanghai will become the first mainland city to adopt the system, which has been lauded by the PBOC since last year as a modern and market-oriented way to monitor financial risk.

Under the Macro-Prudential Assessment (MPA) system, PBOC uses “window guidance”– a means of persuading banks to keep within official guidelines – and also applies different reserve requirement ratios to different banks to persuade lenders to issue loans at a pace that is appropriate to their respective size.

The central bank will assess a broader range of credit products, including banks’ bond and equity investments and other investments, instead of just bank loans.

When the MPA system is applied to the real estate sector, PBOC will look not only at bank loans, but also trust products and overseas capital inflows to see credit flows to developers and homebuyers, said Gao Yuwei, a researcher with the International Finance Institute under Bank of China.

The MPA system could also coordinate different regulations and regulators. For example, the float range of mortgage rates could move along with the change in minimum down payment to ensure regulations are effective, Gao added.

PBOC said the new system consists of a basic database, a monitoring system, evaluation system and policy toolbox. The effect could be that when demographic fundamentals don’t support rapid price rises, PBOC will give banks window guidance, Gao said.