Will Bank Stress Tests Further Constrict Lending to Property Developers?


Risk concerns amongst Chinese banks could further constrain lending to the property development sector in the lead up to the end of 2017.

Funding for China’s property development sector has come under heavy pressure in 2017, with the central government’s ongoing deleveraging drive driving up the cost of financing and property control policies placing onerous curbs on the market.

While Beijing has recently permitted developers to return to the offshore bond market, financing from banks could soon come under further pressure as lenders take pains to ameliorate systemic risk.

One executive from a state-owned Chinese bank said to Shanghai Securities News that lenders are resuming real-estate stress tests, and are likely to tighten lending towards highly leveraged or indebted property developers in order to reduce risk.

“On the one hand, banks are placing renewed emphasis on stress tests because of the seasonal tightening of funds towards the end of the year, while on the other hand they are impacted by [property] tightening and control policies,” said the source.

“Since the start of the year lending to property developers has been quite tight…usually after each stress test, irrespective of the results, banks will tighten their volume of property development lending to a significant extent.”

Chinese banks are most likely to restrict lending to those real estate developers that have used high levels of leverage to spur rapid development and expand their annual sales footprint.

Financing by Chinese real estate developers has tightened considerably since the start of the year, with refinancing by listed-companies seeing especially marked declines.

Data from the Shanghai Stock Exchange indicates that as of 15 November the total sum of private placements applied for by A-share real estate developers has fallen by 23.9% compared to the same period last year, to 85.578 billion yuan from 112.056 billion yuan.

The total amount actually raised by means of private placements has plunged by 89.7%, to 4.514 billion yuan from 43.988 billion yuan.