Commercial banks should take action to curb the increasing
levels of lending in the real estate sector, China’s banking
regulatory body has urged.
China needs to significantly increase mortgage down payments on
expensive homes and investment properties as part of measures to
rein in bank lending, according to Liu Mingkang, chairman of China
Banking Regulatory Commission (CBRC).
"Commercial banks need to keep a close watch on borrowers'
repayment ability and their credit status," he said. Liu made his
comments at a meeting on Wednesday with China's major commercial
banks.
A statement was posted on the commission's website yesterday. It
states, "Banks should greatly promote loans for first-time home
owners but stop granting mortgages for anyone other than the home
owner.
"They should significantly increase down payments for those
buying anything more than their first home and for expensive
properties, villas, commercial properties and other speculative
purchases," the statement said.
But CBRC didn’t specify by how much down payments should be
raised.
Property prices in 70 large and medium-sized Chinese cities saw
an average 5.5 percent increase in the first quarter from the same
period in 2005, according to the National Bureau of Statistics.
The CBRC said it would take a targeted approach to controlling
lending by placing stricter requirements on banks that had capital
adequacy ratios of less than 8 percent. It would encourage certain
types of property lending while restricting others.
As well as targeting property lending the commission said it was
asking banks to stop arranging set quotas of loans with local and
provincial governments?-- a major source of lending since the
start of the year. Much of the money has gone into fixed investment
in property and other assets.
The CBRC's move is seen as an attempt to keep China's rapidly
growing economy from overheating. Last month the central bank
raised the one-year benchmark lending rate by 27 base points to
5.85 percent in a bid to curb credit and investment growth.
China reported total loans of 20.6 trillion yuan (US$2.575
trillion) which is up 14.7 percent over the previous year at the
end of the first quarter.
The central bank recently denied reports that it was considering
increasing down payments to 50 percent from the current 20
percent.
Liu's comments follow a six-point directive issued by the State
Council last week requiring government agencies to rein in what
many are calling runaway property price increases in some
cities.
An executive meeting of the State Council chaired by Premier Wen Jiabao vowed to take necessary measures to
improve the property market and curb rapid price rises in major
cities.
(China Daily May 26, 2006)