Chinese banks suspend mortgage approvals amid fund shortage

Chinese banks suspend mortgage approvals amid fund shortage

Staff Reporter

2013-09-24

China is once again facing a shortage of funds, with the benchmark overnight Shanghai Interbank Offered Rate (Shibor) rising to 3.56% from Sept. 6’s 2.95%, and banks have begun to suspend mortgage approvals, the Beijing-based China Times (not our sister paper) reports. China saw an unprecedented liquidity shortage in June, with the overnight Shibor on June 20 surging 578.4 basis points to 13.444%, a record high. Banks would typically start to tighten their mortgage approvals near the end of a year, but many have already begun doing so, the paper said. When Mr Lu applied for a mortgage for his house, a bank clerk told him that the bank may at best approve the mortgage a month later and there is no guarantee when the approval will be made. An unnamed bank executive confirmed that most banks have faced tightening approval practices in mortgages and other loans as demand for loans far exceeds the funds available. The executive, however, said the suspension of loan approvals began just one week before the Mid-Autumn Festival on Sept. 19, and liquidity will remain tight until the end of this month for his bank.According to the paper, several domestic banks including Minsheng Banking Corp and Industrial and Commercial Bank of China, have all suspended mortgage approvals, while metropolitan banks such as the Bank of Nanjing have also suspended mortgage approvals and won’t accept new applications until the end of this month. One state-run bank official said his bank still goes through the normal process for mortgages, but its branches will at the quickest approve the applications at the end of October.

Central bank figures show that in the first half of the year, financial institutions’ new property-related loans totaled 1.3 trillion yuan (US$212.4 billion), up 732.6 billion yuan (US$119.7 billion) from the same period a year earlier, and almost reaching the whole 2012 new mortgages of 1.35 trillion yuan (US$220.5 billion). Meanwhile, mortgages for individual residential mortgages in the first half of the year accounted for 80%.

The current operation is a reasonable risk control, not a suspension of mortgages, said an executive at the Beijing branch of Shanghai Pudong Development Bank, adding that the bank still continues to support those clients with good economic outlooks and backed by the national development policy.

In fact, the central bank has continued to conduct reverse repurchase agreement transactions in the banking system to maintain the liquidity balance, hoping liquidity won’t become too loose, another banking executive said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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