Chinese banks curb property loans to local government firms

Chinese banks curb property loans to local government firms

Banking















Bloomberg

Several of China’s largest banks have become more selective about funding real estate projects by local government financing vehicles, concerned that some are taking on too much risk after they replaced private developers as key buyers of land.

At least five state-run banks have imposed new restrictions this year on loans to weaker local government financing vehicles (LGFVs) seeking to buy land and develop new real estate projects, said the people, asking not to be identified discussing a private matter. Banks are being more stringent in assessing the financial strength of the local economy and the sales prospects of the projects.

China’s biggest lenders are walking a fine line over the property sector, which has been battered by a series of debt defaults, plunging home sales and lower prices in some cities. While banks are being encouraged by regulators to extend credit to stronger developers, they’re also under pressure to keep loan losses contained and avoid financing property firms and LGFVs that have borrowed excessively.

A Bloomberg Intelligence gauge of China real estate developers extended losses in afternoon trading, dropping 4.3% for the biggest decline in four months.