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Banks (Finance)

Chinese Banks to Tighten Lending to Local Governments and Real-Estate Enterprises

Strategic Insights

— 1 min read

Chinese commercial banks have pledged to control loans to local governments' financing platforms and real-estate enterprises, citing high risks and concerns over project sustainability. Industry insiders warn that bank assets could be in danger if loans are not repaid, affecting banks' asset quality. The China Banking Regulatory Commission has also urged banks to control credit to high-pollution and energy-intensive projects, and sectors with excess capacity.

Key Takeaways:

  • China's largest lender, the Industrial and Commercial Bank of China (ICBC), has stated that it will strictly manage its loans to infrastructure and land reserve projects conducted through local governments' financing platforms.
  • The Bank of China (BoC) has announced that it will stop lending to certain projects in non-key provinces.
  • By the end of September 2009, loans to local governments' financing platforms were 2.4 times the local governments' fiscal revenue, with nearly 90% of them being bank credit.
  • Lian Ping, chief economist with the Bank of Communications, estimates that bank assets could be in danger in three to five years due to longer loan duration.
  • Industry insiders express concern that local governments may struggle to repay debts, affecting banks' asset quality.
  • The China Banking Regulatory Commission has urged banks to control credit to the real-estate sector and high-pollution and energy-intensive projects.
  • The ICBC has withdrawn loans granted to real-estate businesses that hoarded land or houses for profit.
  • New loans to real-estate developers totaled 576.4 billion yuan in 2009, with an outstanding figure up 30.7% year on year by the end of 2009.

Statistics:

  • Loans to local governments' financing platforms were 2.4 times the local governments' fiscal revenue by the end of September 2009.
  • Nearly 90% of total loans to local governments' financing platforms were bank credit.
  • The China Banking Regulatory Commission has urged banks to control credit to the real-estate sector.
  • New loans to real-estate developers totaled 576.4 billion yuan in 2009.
  • Outstanding real-estate loans increased by 30.7% year on year by the end of 2009.
  • The ICBC granted 1.5 trillion yuan of loans in 2009, with 400 billion yuan of them extended to local financing platforms.

Sources:

  • (Source: Xinhua via COMTEX)

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