By Engen Tham
SHANGHAI China's lenders are swapping struggling corporates for more promising retail borrowers - restructuring branches, teams and even overhauling bankers' commissions in an unprecedented push that is fuelling a record jump in home loans.Yet the speed of the switch, the pressure to pull in more borrowers and soaring house prices are also worrying loan officers, analysts and regulators, with the central bank governor among those sounding a note of caution.Corporate lending has long made up the bulk of many Chinese banks' loan books: the deals are larger and loans have more attractive rates. But with firms faltering, economic growth slowing for key sectors and banks under pressure to deleverage, lenders are eyeing other options.While retail lending also includes credit cards and consumer loans, mortgage lending has been a focus for China's big five banks since the push began in earnest last year. Mortgage lending was up around 30 percent for the big five in 2016, the fastest growth in five years, while property lending in China accounted for 40.4 percent of new loans in the first quarter, data from the People's Bank of China (PBOC) showed. [nL3N1HT325]Mortgages in China are among the safest loans - they are secured, of course, and conservative borrowing also means loan-to-value ratios (LTV) as low as under 40 percent.However, bankers, investors and analysts say the latest retail push has seen unprecedented pressure, tough targets and hard-hitting sales tactics - with some drawing comparisons to the pre-financial crisis years in the United States."There was quite a lot of (skirting mortgage rules) last year," said Chen Shujin, a banking analyst from Huatai Securities. "We do think this will have an impact on the quality of mortgages and bank assets." Mortgage growth is also set to slow this year, credit analysts say. Many cities have introduced a raft of measures to cool property prices that have surged beyond the reach of many Chinese, posing growing financial risks. China's central bank did not respond to requests for comment, though governor Zhou Xiaochuan has cautioned on the need for "balance" as mortgages jump, according to local media.
The China Banking Regulatory Commission also did not respond to requests for comment. MORE LOANS, MORE TROUBLE?
Among the concerns is the pressure on bankers to radically accelerate the number of loans they push through. "It doesn’t matter whether you were from the corporate team, or SME team, now 50 percent of your targets are retail borrowing targets," said one banker at Ping An Bank 000001.SZ. Ping An increased its retail assets under management by 13.6 percent in the first quarter alone as part of a major strategic shift in focus from corporate to retail.
At one branch, many bankers now have to open 60 retail accounts a year, two Ping An bankers said. Bankers with retail experience have been promoted to head many of the lender's sub-branches, they added.To incentivise bankers, Ping An is providing higher commissions for retail wins. Bankers who don't hit their targets for the sale of an unpopular product face penalties, according to the Ping An bankers. There was no suggestion bankers at Ping An had skirted mortgage rules. Ping An said it disputed some elements of the bankers' account, without clarifying which parts.But similar accounts emerge across the sector. Rival lender CITIC Bank has changed its sub-branches from handling both corporate and retail lending to just focusing on one or the other, with more in some areas focused on retail, according to the website and two bankers.
"We're slowly moving towards retail by hiring more bankers with retail experience," said one vice-president of a CITIC Bank sub-branch.CITIC Bank did not respond to requests for comment. Again, there was no evidence its bankers were side-stepping loan rules.While the high pressure practices have drawn some comparisons to the U.S. property bubble, analysts noted Beijing can exert far more control on its banking system, much of which is state owned.Mortgage-backed securities and other financial instruments that helped aggravate the U.S. problems are also less developed in China, although volumes are growing steadily.Residential mortgage-backed securities in 2016 tripled from a year earlier to 138.2 billion yuan ($20 billion), according to China Central Depository & Clearing Co Ltd. With average property deposits last year of close to 50 percent, risks are manageable, said Huatai's Chen.Still, a report by Moody's Investors Services this month noted that while Chinese mortgages have historically shown very low risk, "the latest loan originations are likely to entail a high level of risk, because of the sharp rise in property prices in 2016."($1 = 6.9055 Chinese yuan renminbi) (Editing by Clara Ferreira-Marques and Lincoln Feast)
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Updated Date: May 10, 2017 05:15 AM