The Central bank and the China Insurance Regulatory Commission said in a statement on Thursday that they would cap banks’ real estate lending. Bloomberg reports that it is the latest effort by the Communist Party’s financial regulator to prevent systemic risk and ensure financial stability.
The Communist Party of China (CPC) Central Bank and the China Insurance Regulatory Commission (CIRC) have decided to establish a centralized management system for real estate lending by financial institutions in the banking sector, according to a joint notice released on Thursday.
Notice, said real estate loan concentration management system, is refers to the establishment of Chinese legal person in China banking financial institutions, its real estate loan balance of individual housing loan balance of ratio and proportion should satisfy the People’s Bank of China, silver the management requirements designated by the circ, which shall not be higher than the People’s Bank of China, silver circ to determine the corresponding limit. Institutions and businesses that exceed the cap will have a grace period of up to four years to meet the requirements.
The system will take effect on January 1, 2021, the circular said.
According to a new mechanism set to take effect on January 1, 2021, China’s state-owned banks can lend up to 40 per cent to big developers, while banks should have no more than 32.5 per cent of their mortgages outstanding.
Under the new regime, banks will be divided into five categories, with different limits on lending to developers and home buyers, while those that do not comply will face additional capital charges.
China’s Communist party regulator plans to limit bank lending to the property sector for the first time, Bloomberg reported On Dec. 31, in its latest effort to guard against systemic risk and ensure financial stability.
Despite years of regulatory efforts by the Communist government to rein in rising property prices, banks are stepping up bets on the sector to boost profits, driving up prices and driving up financial risks, bloomberg reports, and stoking popular resentment.
For now, housing demand is being supported by fears of missing out on rising prices and a strong desire to guard against inflation, while the central bank’s loose monetary policy continues to support the COVID-19 hit economy and credit growth has rebounded.
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