China may lend to real estate businesses without collateral

China is considering allowing banks to issue unsecured loans to a select number of eligible developers. The country is also finalizing a draft list of 50 developers eligible for financing, including Country Garden Holdings and Sino-Ocean Group.

Sources also revealed that authorities are considering a mechanism that would allow a bank to coordinate support for a specific financially distressed developer by working with other banks.

However, for the new lending mechanism to be truly effective, experts suggest that regulators need to exempt banks from liability for potential bad debts arising from related risks.

At a recent meeting with China's top financial regulators, the largest banks and asset management companies were instructed to meet any reasonable borrowing needs from real estate companies.

If these new support measures are approved, it would be China's strongest effort to date to address the approximately $446 billion in capital that real estate businesses need to resolve liquidity issues.

The demand for banks to increase support for the real estate sector also comes with risks. Real estate loan balances in China at the end of September fell year-on-year for the first time, indicating that banks are being cautious.

The largest banks and asset management companies are required to meet all reasonable borrowing needs from real estate companies (Photo: Straits Times).

According to analysts at JPMorgan Chase, if China requires unsecured loans for eligible real estate businesses, it would pose a risk to banks.

Experts believe such measures are negative for banks as they would increase credit risk. They also predict that implementing the new measures will be challenging because banks may circumvent the directive due to concerns about credit risk.

Leonard Law, a senior credit analyst at Lucror Analytics, believes Beijing's latest policy move is a major step toward supporting businesses, but may not be enough to prevent further defaults in the real estate sector.

He stated that the success of unsecured lending policies would depend on the scale of financing and the banks' willingness to implement them. Increased working capital could help developers quickly complete projects.

According to Zerlina Zeng, a senior analyst at financial firm CreditSights, high-quality real estate businesses, including privately held companies that have not defaulted, could benefit from the new lending measures.

Source: https://dantri.com.vn/bat-dong-san/trung-quoc-co-the-cho-doanh-nghiep-bat-dong-san-vay-khong-can-the-chap-20231128010247126.htm