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Bank Loans Quicken Pace of Housing Privatization
China's ongoing housing system reform is refueling growth of the banking sector by boosting major lending businesses.
The China Construction Bank (CCB), currently the leading lender in the housing market, has announced even more ambitious strategies to entrench itself in this promising area of banking.
By the end of April, the State-owned commercial bank had lent 155 billion yuan (US$18.7 billion) to homebuyers helping 2.7 million Chinese families buy residences, statistics from the bank indicated. Outstanding credit was 106.3 billion yuan (US$12.8 billion).
The bank pioneered housing lending to individuals during the late 1980s and still holds half the market.
Bolstered by rising optimism over the long term prospects of the housing market, the CCB is building on its involvement in the housing lending business. It has set a goal of lending another 40 billion yuan (US$4.8 billion) this year to help buyers realize the dream of home ownership.
This is useful because the government has put an end to a years-long free housing system under the planned economy.
The CCB will further diversify its consumer credit product mix, extending it to cover interior decoration, automobiles and related services, it said in a statement.
It has plans for housing lending in western China, to explore market potential there and ensure sustainable growth in the sector.
Although housing loans have become more popular in China in recent years, its growth had been retarded by a host of problems such as unclear house ownership, cumbersome borrowing procedures, a lack of individual credit systems, arbitrary fees and a rigid interest rate system, insiders said.
Only 4 million households in China have used housing loans. In a population of 1.2 billion, that means there is much room for growth. Housing loans are used to close two of every three deals in advanced countries such as Germany.
The CCB, in the near term, will pilot a mortgage housing loan securitization programme, the statement said. Securitization of mortgaged housing loans is used in global practice to expand banks' financial resources and spread credit risks.
"We are going to launch it at a proper time,'' Zhang Enzhao, a vice-president at CCB, said.
Zhang said earlier that because the People's Bank of China, the central bank, had decided to loosen controls over interest rates, the bank was also mulling readjusting its housing lending rates, to make them more responsive to the market and more remunerative.
In a related development, insiders said it is time to once again make housing credit insurance available. This product was suspended late in 1998 to fend against financial risks faced by both banks and borrowers.
The authorities ordered a suspension in offering housing credit insurance because insurance companies complained it was not possible for them to bear all the uncertainties inherent in housing loans.
"But the situation is changing,'' said Christian Bisschop, chief representative of the France-based CNP Assurances's Beijing Office. "Banks have come to realize that they should also be responsible for part of the risks.''
"Resuming housing loan insurance services will help our business to some degree, although it is only a small part of our mortgage business at this time,'' said Ying Hong, deputy chief manager of China Construction Bank's housing and building credit department.
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