Chinese mortgage rates rise as loan clampdown bites

BEIJING: A major Chinese bank has raised mortgage rates in one of the first signs of how a government lending clampdown is rippling through the economy and could tame turbo-charged growth but spook investors, according to Reuters.

Bank of China's decision to roll back mortgage discounts came after banks throughout the country aggressively called in loans in the second half of January to fall into line with a directive from Beijing to slow lending.

Regulators have also issued banks with strict lending quotas and begun demanding daily notification of loan volumes in order to avoid an uncontrolled credit surge, local media reported on Feb 3.

"If loans are called back, and, more importantly, if it is increasingly difficult to get new credit, it will be bad for the real economy," said Zhang Lei, an analyst with Bohai Securities in Tianjin.

That, to a certain extent, has been the government's game-plan after annual economic growth leapt to 10.7% in the fourth quarter, stoking fears about overheating and inflation.

But the liquidity tightening has weighed on investors worldwide, who fret that it will curb demand from an economy that has led the way out of the global financial crisis.

The benchmark Shanghai Composite Index tumbled 9% in January, making it one of the worst-performing bourses in the world.

China's tightening measures have also caught the attention of global policymakers. The Reserve Bank of Australia cited China on Feb 2, among other factors, after surprising markets by skipping a rate rise.

Property prices across China rose 7.8% year-on-year in December and soared even higher in parts of some major cities, driving the government to use taxes and credit controls to let the air out of an incipient bubble.

Those measures, plus the lending clampdown, have started to bite, with property transaction volumes falling steeply and prices starting to ease in some cities.
Bank of China, the country's third-largest bank by market capitalisation, said it would halve the discount on mortgage rates that the government introduced in 2008 to stimulate the then-flagging property sector.

"Policy headwinds and more supply on the housing side are negatives for the property sector," said Richard Wong, investment director of equities at Halbis, an arm of HSBC Asset Management in Hong Kong. "If the situation persists in the second quarter, there may be more pressure on developers to raise cash."

Less lending
The country's biggest banks lent heavily in January but less than in the same month last year, cutting their credit issuance under heavy government pressure, sources told Reuters.

China Construction Bank (CCB) extended 102 billion yuan (RM51 billion) in new loans, while Bank of China lent about 150 billion yuan.
Industrial and Commercial Bank of China, the world's largest bank by asset value, lent about 110 billion yuan, which the 21st Century Business Herald said was 50 billion yuan less than its total in mid-January.

Overall net new yuan loans from Chinese banks fell to less than 1.1 trillion yuan as of Jan. 28 from 1.45 trillion yuan in the first 19 days, after the central bank ordered lenders to recall some loans, Caiing magazine reported on its website.

Banks appeared to be mainly paring back discounted bills, a form of short-term financing, which swelled loan totals at the start of last year and did more to fuel stock and property market speculation than real investment.

Still, analysts said monetary conditions remained quite loose with China targeting a hefty 7.5 trillion yuan in new credit over the full year. But they said the authorities wanted banks to better balance loans and desist from the kind of surge unleashed at the start of 2010.

"New lending is seen at 7.5 to 8 trillion yuan, which represents a 20% increase in credit. Such growth cannot be said to be tightening," Yvonne Zhang, an analyst at Moody's in Beijing, said.

Quotas
Nevertheless, the government has made clear over the past two weeks that it has little faith in the banks smoothly hitting that target by themselves and is watching them every step of the way.

Beijing has set a banking sector-wide ceiling of 2.4 trillion yuan in new loans for the first quarter, the 21st Century Business Herald reported. That would be about one-third of the full-year 7.5 trillion target, adhering to the pattern of front-loaded lending seen in previous years.

The newspaper also said that authorities have allocated the following full-year loan quotas to the country's biggest banks:

-- 850 billion yuan for ICBC;

-- 750 billion yuan for China Construction Bank;

-- 700 billion yuan for Agricultural Bank of China;

-- 600 billion yuan for Bank of China.

The China Banking Regulatory Commission denied last month that it was implementing bank-specific loan quotas, which have been used in the past to strictly guide lending. -- Reuters