Many of China’s small and medium-sized banks are suspending the provision of consumer mortgage loans as regulators crackdown on the illicit use of funds to speculate in real estate or the stock market.
China’s financial regulators launched a crackdown on the illicit use of consumer finance for real estate or share investment purposes towards the end of last year, after reports emerged that realtors were working with banks in cities such as Beijing and Shenzhen to provide funds to homebuyers under the guise of personal consumer or business loans.
As a result of this increased regulatory pressure many of China’s smaller banks have suspended their provision of consumer mortgage loans since the start of 2018.
Shanghai Securities News reports that at the start of the year it was possible to obtain a six million yuan (approx. USD$950,000) consumer mortgage from a listed municipal commercial bank with a five year term and a monthly interest rate of 0.6%.
These terms were extremely favourable compared to rates of as high as 10% charged for standard home mortgages in China, as a result of lending curbs imposed as part of property market controls.
According to industry insiders the very size of such loans makes it apparent that they were unlikely to be used to fund regular consumption purchases.
“Who would borrow several million yuan for consumption?,” said one executive at a municipal commercial bank to Shanghai Securities News, who points out that in the past funds from such loans were usually used for the down payments on residential properties.
According to the executive last year his bank reduced its consumer mortgage loan ceiling to 1 million yuan, before suspending them altogether. At present it only provides unsecured consumer loans, with a maximum amount of 300,000 yuan.
He said that the reduction in real estate-related lending is part of a “strategic withdrawal” that has become a trend amongst smaller Chinese banks, and also involves a shift in resources towards credit cards and major retail.