Chinese Officials Urging Banks To Hasten Loans To Struggling Real Estate Developers

Chinese authorities are urging banks in Beijing to expedite loan approvals for property developers facing challenges amidst a prolonged downturn, as reported by Reuters.

The persistent slump in China's real estate sector over the past year has raised concerns of a potential "Lehman moment," marked by plummeting property values, waning homebuyer confidence and a backlog of incomplete construction projects. Home prices have continued to decline for the eighth consecutive month in February.

In an effort to bolster sentiment and confidence, authorities are reportedly testing a "whitelist" mechanism designed to assist cash-strapped developers in the sector. This programme, initiated by Beijing last week according to Reuters, targets both state-backed construction firms and private developers seeking new financing totaling 1.5 trillion yuan. Under this initiative, city governments are empowered to recommend residential property projects to banks for financial support.

However, there are concerns that expediting loan approvals could lead to a decline in loan quality. Nonetheless, authorities view faster loan approval for residential construction as a vital step towards revitalising the real estate market.

Despite the initiative, many Chinese banks have been cautious about increasing credit exposure to the struggling property market. This cautious approach has dampened hopes for a significant rebound in real estate and has consequently restrained economic growth, given the sector's significant contribution to the economy.

Furthermore, Chinese banks themselves are experiencing a downturn, as weak consumer sentiment and subdued growth prospects have subdued loan demand and business activity. Among the top five state-backed lenders in China, three are expected to report lower net income for the full-year 2023, while the remaining two are also projected to see reduced profits.