China’s Banking Regulator Calls for Real Estate Trust Companies to Arrest Rapid Growth

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The Chinese banking regulator is convening meetings with certain members of the real estate trust sector following concerns over the risk created by overly rapid growth.

Senior officials from the China Banking and Insurance Regulatory Commission (CBIRC) said that the agency had recently convened discussions with certain trust companies in order to prompt them to control the growth of their operations and step up their risk control efforts.

According to CBIRC the warnings are intended to strengthen risk control in the real estate trust sector, and address the problem of certain real estate trust companies posting excessively rapid growth.

As of the end of May the real estate trust asset balance in China was 3.15 trillion yuan, for an increase of 166.597 billion yuan since the start of the year, and a YoY rise of 15.15%.

The real estate trust asset balance accounted for 14.00% of China’s trust asset balance.

During recent meetings CBIRC made five key requirements of Chinese real estate trust companies:

  1. Strengthening of broader awareness, strict implementation of the general requirement that “houses are for occupation, not speculation,” strict implementation of real estate market control policies and existing real estate trust regulatory requirements;
  2. Increases in risk control levels to ensure that operations scope and complexity matches the capital strength and capital management levels of companies;
  3. Increases in compliance awareness and strengthening of compliance to ensure that real estate trust operations see steady growth;
  4. Control of the pace of operations growth, maintaining a rational balance in the volume and pace of the growth of real estate trust operations;
  5. Increasing trust management capability, actively optimising real estate trust service methods, and providing specialised and customised financial services to real estate enterprises.

CBIRC officials said the measures would help to “restrain the current trend of excessively rapid growth in real estate trust operations…drive trust companies to return to their original purpose, optimise structures, effectively transition, and expedite the stable and healthy growth of the real estate market.”

Efforts by Chinese regulators to restrain the real estate trust sector have already borne fruit.

During the period from June 2018 to June 2019 the monthly number of real estate trusts established held the top position amongst all trusts for 13 consecutive months, emerging as a key support for the growth of trust companies.

June saw a major contraction in the value of real estate trusts established, however, with a contraction to 46.583 billion yuan from 69.344 billion yuan in May, for a decline of 22.761 billion yuan, or 32.82%.

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