Thursday 4 February 2010

Bank of China pulls back mortgage discount policy

Bank of China, the country’s third-largest bank by market capitalisation, said on Wednesday it had cut a discount on mortgage rates offered to home buyers, in an effort to optimise lending structures.

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Guanyu said...

Bank of China pulls back mortgage discount policy

Reuters in Beijing
03 February 2010

Bank of China, the country’s third-largest bank by market capitalisation, said on Wednesday it had cut a discount on mortgage rates offered to home buyers, in an effort to optimise lending structures.

Beijing allowed lenders to offer 30 per cent discount on mortgage rates to first-home buyers in late 2008 to boost property sales at the height of the global financial crisis.

Bank of China had cut the mortgage rate discount for first-home buyers to 15 per cent from 30 per cent, according to a local media report.

Bank of China announced last month it planned to issue new equity equivalent to as much as 20 per cent of its existing shares and issue up to 40 billion yuan (HK$45.5 billion) worth of convertible bonds to shore up its capital base.

Meanwhile mainland media reported on Wednesday that two of mainland’s biggest banks aggressively called back loans in the second half of January to fall into line with the government’s directive to slow lending.

Regulators have also issued banks with strict lending quotas and begun demanding daily notification of loan volumes in order to avoid a start-of-year credit surge and keep lending flows more balanced over the coming months, media added.

Banks appeared to be mainly cutting back discounted bills, a form of short-term financing which swelled loan totals at the start of last year and did more to fuel stock and property market speculation than real investment activity.

Bank of China made about 140 billion yuan in new loans in January, 20 billion yuan less than it lent in the first half of the month, the 21st Century Business Herald said, citing unnamed sources.

Industrial and Commercial Bank of China (SEHK: 1398), the world’s largest bank by asset value, lent about 110 billion yuan in January, which the newspaper said was 50 billion yuan lower than its mid-month total.

“Many banks are calling back loans and have stopped offering new credit or selling commercial bills, trying to keep down their overall loan totals,” a banker was quoted by the newspaper as saying.

It added that the government had set a sector-wide ceiling of 2.4 trillion yuan in new loans for the first quarter. That would be about one-third of the full-year 7.5 trillion target, adhering to the pattern of front-loaded lending seen in previous years.

The newspaper also said that authorities have allocated full-year loan quotas to each of the country’s biggest banks:

* 600 billion yuan for Bank of China;
* 850 billion for ICBC;
* 750 billion for China Construction Bank;
* 700 billion for Agricultural Bank of China.

The China Banking Regulatory Commission (CBRC) denied last month that it was implementing bank-specific loan quotas, which have been used in the past to strictly guide lending.

Overall new yuan loans issued by mainland banks fell to less than 1.1 trillion yuan as of January 28 from 1.45 trillion yuan in the first 19 days of the month, after the central bank ordered lenders to recall some loans, according to the Caijing magazine website.