China’s Banking Regulator Hails Reduction in Real Estate Lending Ratios, Highlights Rise amongst Smaller Lenders Vying for Market Share


The ratio of real estate loans as a share of all credit extended by Chinese banks has decline since the launch of a new system to cap levels at the end of last year, yet has also had the unintended effect of spurring real estate lending by smaller regional banks.

Liu Zhongrui (刘忠瑞) deputy-chair of the China Banking and Insurance Regulatory Commission (CBIRC) said that the “real estate loan concentration” of Chinese banks – defined as the real estate lending balance and personal home mortgage balance as a share of all renminbi lending by a given bank, had fallen significantly since the start of 2021.

“As of the end of April, the real estate loan concentration of banking sector financial institutions had fallen 0.5 percentage points compared to the same period last year,” said Liu to state-owned media.

“The big six state-owned banks have all achieved reductions in their real-estate loan concentrations, and the concentrations for other types of banks have shown an overall trend of decline.”

CBIRC data further indicates that at end of April banking-sector real estate loans increased 10.5% compared to the same period last year, for the lowest rate of growth in eight years.

Li nonetheless highlighted problems which had arisen during the implementation of the new policy, including small and medium-sized regional banks competing to expand their share of the local real estate loan market following the withdrawal of large-scale banks.

This had led to a more rapid increase in their real estate loans, and a rise in their real estate loan concentrations.

“CBIRC is heavily focused on this problem, and has implemented a name-list system for the management of banks with comparatively high ratios of new real estate loans, expediting these banks to implement real estate finance control requirements, and rationally control the pace of growth in real estate loans,” said Liu. “More severe regulatory measures will be adopted for those who fail to make corrections within the set timeframe.”

At the end of 2020 the Chinese central bank and and CBIRC launched a new system to manage the ratio of real-estate loans made by commercial banks.

Under the system the “real estate loan concentration” of Chinese banks – defined as the real estate lending balance and personal home mortgage balance as a share of all renminbi lending by a bank, needs to satisfy requirements set by PBOC and CBIRC.

For large-scale Chinese banks the maximum real estate loan ratio is set at 40%, and the maximum personal mortgage ratio at 32.5%. For medium-scale banks the ratios are 27.5% and 20% respectively, and for small-scale banks 22.5% and 17.5%.

Liu Zhongrui said that the focus of the management system was to raise the resilience and stability of banks, and prevent systemic risk arising from an excessive concentration of real estate loans, as well as to spur banks to better service the real economy and drive financial supply-side structural reforms.

Liu also said that CBIRC’s local agencies had conducted on-site and off-site inspections of regional lenders in cities where there were incipient signs of illicit flows of business loans into the real estate market, and found that certain enterprises and individuals had used multiple means to “dodge regulatory requirements…and apply for business loans to pay home purchase funds.”

“Some borrowers have circulated funds obtained from personal business loans between accounts at multiple banks, in order to conceal their final goal of making home purchases, and some have made up transactions and fabricated loan purposes.”

Liu said that CBIRC would continue to work with local housing regulators and the Chinese central bank to scrutinise the results of policy implementation.

“Banks and intermediaries that deliberately conceal problems or do not promptly take accountability for problems that are uncovered will be subject to strict regulatory measures,” Liu said.

“Individuals that misappropriate business loans will not only see their credit quotas reduced, they will also be reported to the credit ratings system, in order to increase the cost of misappropriation of loans in breach of regulations.”