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Bank, real estate risk: the operation logic of the industry has changed and it is expected that it will still be under pressure in the future.

iconOct 26, 2021 15:52
[banking, real estate risk: the operating logic of the industry has changed and it is expected that it will still be under pressure] "the logic of the operation of the real estate industry has changed." Zhu Jiangtao, vice president and chief risk officer of China Merchants Bank, recently said at the bank's third-quarter 2021 performance meeting that from the current monitoring, the quality of the bank's real estate-related assets is generally controllable, but the overall risk may continue to be under pressure.

"the logic of the operation of the real estate industry has changed." Zhu Jiangtao, vice president and chief risk officer of China Merchants Bank, recently said at the bank's third-quarter 2021 performance meeting that from the current monitoring, the quality of the bank's real estate-related assets is generally controllable, but the overall risk may continue to be under pressure.

Since the beginning of this year, with the increasing risks of real estate enterprises and regulatory control over the concentration of real estate loans, the banking industry has been under increasing pressure to adjust real estate-related loans, as is China Merchants Bank. On the one hand, the risk exposure of the real estate industry has become one of the important factors for the bank to set aside non-credit assets; on the other hand, the bank is also actively adjusting housing mortgage loans.

With regard to real estate development loans, China Merchants Bank executives said that the bank's investment in public lending has always adhered to the principle of "selecting customers, regions, focusing on development loans and strict management". In terms of personal housing loans, due to the impact of the real estate situation, the growth rate will also slow down next year, but it will not stall and should be basically the same as this year's incremental arrangement.

The rising risk of non-performing development loans can be controlled, but it will still be under pressure.

According to data from China Merchants Bank, the balance of the bank's public real estate loans at the end of the third quarter was 358.874 billion yuan, an increase of 16.554 billion yuan over the end of last year, accounting for 6.93% of the company's total loans and advances, down 0.3% from the end of last year, and mainly invested in high-quality strategic customers. On the other hand, the business balance that does not bear credit risk, such as financial management funds, entrusted loans, consignment trusts actively managed by cooperative institutions, and main underwriting debt financing instruments, amounts to 478.817 billion yuan.

Affected by policy regulation and credit risk exposure of some real estate enterprises, as of the end of September, the non-performing loan ratio of China Merchants Bank to public real estate was 1.29%, up 1.06 percentage points from the end of last year, but lower than the bad rate of corporate loans by 0.18 percentage points. In the customer structure of the real estate business that bears credit risk, the balance of customers with high credit rating accounts for 86.74%, and the balance of strategic real estate customers of the head office accounts for 64.78%.

In the view of the senior management of China Merchants Bank, the asset quality of the bank is generally controllable, but judging the overall risk may still be under pressure.

"the logic of the operation of the real estate industry has changed." Zhu Jiangtao said that in the context of industry regulation and control, the follow-up business model of high leverage, high debt and high turnover will be difficult to sustain, and industry shrinking tables and reducing leverage should be the new normal. In the future, the differentiation of real estate enterprises will still be further intensified, and enterprises with more obvious head characteristics will have more room for development.

Li Mingdong, general manager of the risk management department of China Merchants Bank, said that in the investment of development loans, the bank emphasizes the self-reimbursement of the project, and strictly carries on the closed management of real estate development loans. therefore, the quality of real estate development loans of China Merchants Bank will continue to remain relatively sound. According to reports, from the perspective of investment in the whole region, 80% of the projects are concentrated in first-and second-tier cities; in the selection of development loan projects, China Merchants Bank focuses on the rigid demand and improved housing in first-and second-tier cities, which is basically consistent with the investment of national policy, while actively meeting the rigid demand for housing financing needs, but also maintaining the stability of self-reimbursed cash flow of the entire project.

Risk exposure in the real estate industry has become one of the important factors in the bank's provision for non-credit assets. Zhu Jiangtao said that while the risks in the real estate industry are generally manageable, the risk of individual default is on the rise. Some time ago, some large head housing companies defaulted, in fact, this will be further extended and contagious, and may affect some closely related regional small and medium-sized financial institutions.

In addition, China Merchants Bank said that for the real estate credit business that bears credit risk, the bank will continue to implement industry quota and customer quota management, focus on central cities and strategic customers, and continuously adjust the real estate customer and regional asset structure. the supervision of real estate business and project funds, the upstream and downstream industrial chain of real estate will continue to conduct a comprehensive investigation and continuous tracking, and make full provisions on a case-by-case basis according to the specific risk situation. For the real estate business that does not bear credit risk, the bank will, in accordance with regulatory requirements, strengthen the management of investor appropriateness, standardize product information disclosure, and earnestly perform corresponding duties. And will closely follow the real estate regulation and control policy, strengthen the real estate risk situation research and judgment.

The proportion of personal mortgages is large, the growth rate may slow down next year.

Data show that at the end of the third quarter, the balance of personal housing mortgage loans of China Merchants Bank was about 1.34 trillion yuan, accounting for 45.96% of retail loans and 25.79% of the total loan balance. According to the previous regulatory requirements for the concentration of personal housing loans, China Merchants Bank should be in the second category, that is, the upper limit of personal housing loans is 20%. This means that the proportion of personal mortgages exceeds the regulatory red line.

Peng Jiawen, general manager of the asset and liability department of China Merchants Bank, said that housing mortgage loans, which accounted for the highest proportion of retail loans in the past, was one of the reasons for the pressure on China Merchants Bank's retail credit growth next year. Due to the impact of the real estate situation, next year's growth rate will also slow down, but will not stall, should be basically the same as this year's incremental arrangement.

Tang Fang, general manager of retail finance headquarters, said that by region, the bank's mortgage loans are mainly concentrated in first-and second-tier cities, whether it is stock loans or new loans this year. First-and second-tier cities accounted for 96% of the new housing mortgage loans this year. In terms of housing mortgage loans, China Merchants Bank will resolutely implement the policy of "housing speculation" and vigorously support the rigid demand for self-occupation.

It is worth noting that at the end of the third quarter, the bad rate of personal housing loans of China Merchants Bank was only 0.24%, down 0.06 percentage points from the end of last year. But the concern loan rate was 0.38%, up 0.26 percentage points from the end of last year. It is reported that China Merchants Bank has focused on loans made by credit default customers in other banks. But China Merchants Bank did not respond.

However, Tang Fang said that China Merchants Bank regularly conducts stress tests on the asset quality of housing loans, making full use of the bank and interbank historical data and risk models to assess the changes in asset quality that may be caused by fluctuations in house prices. and correspondingly iterate, optimize the credit policy, and continuously optimize the asset structure.

"according to the latest test results, the default rates of personal housing mortgage loans at the end of this year are 0.60%, 0.69% and 0.78%, respectively, in mild, moderate and severe cases." Tang Fang said that on the whole, the quality of mortgage loans of China Merchants Bank can remain stable. Considering that there are already some divisions in local markets, China Merchants Bank will also pay attention to the complexity of follow-up market fluctuations and take timely measures to deal with them.

Banks
real estate

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