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September 22, 2016

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Banks bank on mortgage lending

MORTGAGE lending will continue to be the main business for Chinese banks through the end of this year, as they count on earnings from dynamic property market activities amid a slowing economy, rising bad debts and narrowing net-interest margins, consultancy firm PwC China said yesterday.

Lenders in China are extending mortgages at a record clip with the country witnessing a dramatic run-up in house prices across all cities but particularly in first-tier urban centers. Housing loans issued by banks more than doubled to 2.36 trillion yuan (US$354 billion) in the first half of this year from 1.1 trillion yuan a year ago, central bank data showed.

Mortgages accounted for 62.5 percent of new loans by China Construction Bank, while those to businesses such as steel, cement and shipbuilding fell 26.4 percent in the first half.

“The trend is not going to end in the near term,” said Wang Wei, PwC China Financial Services Partner. “Banks have to write down more loans to individual businesses, say mortgage in this case, to earn profits with relatively lower risks at present. This is because they face pressure as corporate loans stagnate, while the surging non-performing loans and less interest margin are also a drag on their performance.”

Non-performing mortgages of Chinese banks were just 0.39 percent of the total last year, while NPLs in the manufacturing and retail sectors accounted for 3.35 percent and 4.25 percent of total loans, data showed.

Wang said weak demand in other sectors has fueled the trend while banks find it easy to deal with the management and liquidation of property assets.

The Chinese banking sector is confronting its toughest time in a decade amid deteriorating profit growth and loan quality. A total 29 national and regional banks listed in Shanghai and Hong Kong recorded 1.13 trillion yuan of NPLs in the first half, with the bad loan ratio rising another 4 percentage points to 1.66 by June-end, PwC said.

“The Big Four lenders tried hard to write off their bad loans in the first half so the balance sheet didn’t look too bad,” said Jimmy Leung, Finance Service Leader of the consultant.

“But lenders’ risks haven’t been fully exposed yet, and we don’t see any stimulus or support for lenders’ businesses by the year-end, in the absence of a broader economic recovery.”


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