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Chinese Banks Begin To Raise Mortgage Rates

February 9, 2017

Chinese Banks Begin To Raise Mortgage Rates

Raising rates on reverse repos, hiking the cost it charges on its Medium-Term Loan Facility and Standing Lending Facility, five consecutive day without a reverse repo liquidity injection (or rather a CNY715 billion liquidity drain), and now in the latest indication of overall tightening of monetary conditions, China has started to hike mortgage rates.

According to press reports, some bank branches in Beijing, Guangzhou and Chongqing have raised mortgage rates for first-home buyers recently. The China Securities Journal confirms as much, reporting that China’s banks in some big cities have started to lower discounts on lending rates for fist-time home buyers, joining recent steps to curb financial risks stemming loose credit conditions.

Following up on the Chinese report, Reuters notes that since the start of 2017, banks in Beijing have started discounting mortgage rates as much as 10 percent off the official benchmark rate, reducing from as much as 15 percent previously, CSJ said on its website. The current one-year benchmark lending rate set by the People’s Bank of China is at 4.35 percent, the lending rate for loans up to five years is at 4.75 percent and loans longer than 5 years is at 4.9 percent.

Few lenders in Beijing and Shanghai still offer mortgage rate discounts more than 10 percent off the benchmark, the Chinese paper said. “There are indications that the financial environment for the property market will no longer be loose in 2017,” it said.

In the southern city of Guangzhou, for example, the Postal Savings Bank, Industrial Bank and Rural Commercial Bank have also adjusted discounts on mortgage rates to as much as 10% off the benchmark rate from as much as 15%, the paper said.

…click on the above link to read the rest of the article…

What Secret Do Global Banks Know about Chinese Banks?

December 30, 2015

What Secret Do Global Banks Know about Chinese Banks?

They’re dumping their stakes.

“Now is the right time for us to sell this investment,” announced Deutsche Bank’s newish co-CEO John Cryan on Monday after the long Christmas weekend when no one was supposed to pay attention.

It was how Cryan justified the deal to sell Deutsche’s entire 19.99% stake in Hua Xia Bank in China to Chinese insurer PICC Property and Casualty. He couched the deal in terms of executing Deutsche’s “strategic agenda”: boosting capital ratios to prop up the balance sheet.

Deutsche isn’t the first Western bank to bail out of banks in China where regulators limit foreign ownership stakes to a maximum of 20%, which brings some complications.

Goldman Sachs sold its stake in Industrial and Commercial Bank of China in 2013. Bank of America Merrill Lynch bailed out of its stake in China Construction Bank in a series of deals. BBVA, Spain’s second largest bank, has been cutting its stake in China Citic Bank from about 15% in 2013 down to 4.7% now, and that remainder appears to be earmarked for sale as well. Other banks are also likely to pick up their marbles and go, such as Standard Chartered, with its stake in Agricultural Bank of China.

Like Deutsche, they couched those deals in terms of boosting capital ratios and balance sheets.

And Deutsche could use some balance sheet repair. One of the largest and most leveraged global banks, it has been tangled up for years in a long list of scandals, court cases, and multi-billion-dollar settlements. Recently it suspended senior staff in Russia after suspecting they’d assisted in laundering money for sanctioned buddies of President Vladimir Putin. We were all shocked.

…click on the above link to read the rest of the article…

China’s “Credit Mystery” Deepens, As Moody’s Warns On Shadow Financing

September 26, 2015

China’s “Credit Mystery” Deepens, As Moody’s Warns On Shadow Financing

Last month, we took a detailed look at what we said could be a multi-trillion yuan black swan.

In short, one of China’s many spinning plates is the country’s vast shadow banking complex which allowed local governments to skirt borrowing restrictions leading directly to the accumulation of debt that totals some 35% of GDP and which has channeled trillions into speculative investments via the proliferation of maturity mismatched wealth management products.

One of the problems with the system is that it allows Chinese banks to obscure credit risk.

As Fitch noted earlier this year, some 40% of credit exposure is effectively carried off balance sheet in China’s banking sector, making it virtually impossible to assess the extent to which banks are exposed. When considered in combination with the unofficial policy whereby the PBoC forces lenders to roll bad debt thus artificially suppressing NPLs, a picture emerges of a system that’s decidedly opaque. Here’s what we said back in May:

The percentage of  loans which are not yet classified as non-performing but which are nonetheless doubtful is much higher than the headline NPL figure and in fact, [Fitch] seems to suggest that some Chinese banks (notably the largest lenders) may be under-reporting their special mention loans. But ultimately it’s irrelevant because between bad assets that are ultimately transferred to AMCs, loans that are channeled through non-bank financial institutions and carried as “investments classified as receivables”, and off-balance sheet financing, nearly 40% of credit risk is carried outside of traditional loans, rendering official NPL data essentially meaningless in terms of assessing the severity of the problem.

Well don’t look now, but according to Moody’s, the practice of obscuring credit risk using one or more of the methods delineated above and outlined in these pages on any number of occasions looks to be getting worse. Here’s Bloomberg:

 

…click on the above link to read the rest of the article…

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