[ET Net News Agency, 7 January 2021] Moody's Investors Service said in a new report
that China's latest guidelines on limiting banks' property loan exposures are credit
positive for banks, but negative for property developers as they will see weaker sales
growth and liquidity due to the constrained access to credit.
"The new guidelines will limit banks' exposure to the real estate sector and address
authorities' concerns that rising signs of overheating in the property market would weaken
banking system stability," said Ray Heung, a Moody's Senior Vice President.
Affected banks that are adjusting to the new rules may face higher property-related
nonperforming loans in the short term, and these banks could lose some capital efficiency
as they shift their loan mix away from property exposures. That said, the overall impact
on affected banks' capitalization, asset risks and profitability will be moderate, because
of the small size and pace of these loan adjustments.
"Meanwhile, property developers will face tightened access to bank loans for
construction activities and mortgage financing. The latter could slow sales and weaken
their liquidity as well as business growth over the next 1-2 years," said Kaven Tsang, a
Moody's Senior Vice President.
At the same time, the guidelines will cap leverage buildup among developers and promote
the sustainable development of the property sector. The limits will also steer banks'
allocation of credit toward companies that are larger and have stronger balance sheets,
thus promoting credit differentiation and industry consolidation in the property sector.
Moody's expects the impact of credit tightening will be limited for most rated
developers because they are major operators with adequate liquidity and established access
to different types of funding. They will also likely slow their pace of growth in the next
1-2 years with the softening of the property market, which in turn will reduce their
funding needs. (KL)