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Rumors on lending to property developers drag down stocks
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ONLINE rumors saying Chinese banks had suspended loans to property developers over the weekend spooked investors and dragged down the key stock index in Shanghai today before they were shown to be false.
The screenshot of an internal file from Fujian-based Industrial Bank said the bank suspended a particular type of loan called mezzanine financing to property developers. The loans entitle the bank to an equity interest in the developer if the loan is not paid back in time.
Property-related supply chain financing was also suspended by the bank, which involves lending to steel and cement producers.
But China International Capital Corp said the banks haven’t tightened credit policies for the entire property sector.
“Only one department of the bank has contracted one single property financing product,” CICC commented in its report today.
“The bank has cut back lending to the property sector due to a lower risk tolerance, not regulatory guidance,” said CCIC. “By the end of June last year, 34 percent of Industrial Bank’s total assets were in lending to the property and local government sectors, which topped all the listed banks in China. The lender started to lower its risk tolerance since then.”
However, Ping An Securities said the news may raise concerns about credit risk for the entire industrial chain of the property sector, according its latest report.
Rumors were untrue that other banks including Bank of Communications, China Citic Bank, China Merchants Bank, and Agricultural Bank of China had received similar instructions to limit lending to property developers.
Bank of Communications denied the receipt of such instructions today.
“The attitude of other banks toward property-related business hasn’t changed from the second half of last year,” Guotai Junan Securities said today.
“The rumors are not true. It’s very unlikely the other banks will rush to follow and suspend all types of loans to the entire property sector,” it added.
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