China Banks Say They Won’t Blame Staff If Developer Loans Go Bad

A number of Chinese state banks are making their strongest effort yet to encourage credit officers to approve loans for developers, in a bid to heed the government’s call to prop up the embattled real estate market.

State lenders including Industrial and Commercial Bank of China Ltd. are telling the officers they won’t be held responsible if property loans eventually turn non-performing, people familiar with the matter said.

The directives — aimed at addressing one of the biggest hurdles to funding cash-strapped developers — underscore the tricky balancing act faced by banks as they try to follow Beijing’s calls for support while protecting their own balance sheets.

It’s unclear whether the assurances will lead to a jump in lending, given staff are also being reminded to conduct due diligence and ensure loans are used as intended, the people said. Previously, loan officers could face a pay cut or be denied promotion for issuing a loan that turns sour.

Smaller lenders are also staking out similar strategies. One city commercial bank has set up a special task force to work on rules that exempt officers from soured property loans, a person with knowledge of the matter said. China Everbright Bank Co. formed a work group led by its top management to stipulate the liability exemption rules and set up a “green channel” for property loan approvals, it said in a statement earlier this week.

Still, lenders will likely remain wary of a quickening build-up of non-performing loans. Combined profits at China’s commercial banks last year rose at the slowest pace since 2020, while outstanding bad loans rose to a record and margins narrowed to an all-time low. Beijing’s directive for lenders to ease borrowing rates has also squeezed margins and crimped profitability.

The nation’s top leadership has grown increasingly alarmed about the protracted crisis and the sluggish economy. Policymakers have asked banks to extend more credit and ensure that loan growth to private developers matches the industry average, though lenders had been reluctant in practice as the real estate downturn has eroded their balance sheets.

Authorities have pressured lenders to boost lending to real estate projects in so-called white lists, as developers struggle to complete projects. Chinese banks have approved a total of 469 billion yuan of bank credit to 1,979 property projects eligible for financing as of end-March, state broadcaster China Central Television reported.

So far that’s done little to arrest the property slump, with home sales dropping further in March.

In another sign of the worsening crisis, China Vanke Co., which was once seen as top quality developer partly due to its state backing, has been in free fall, plummeting 36% in Hong Kong since the end of February due to liquidity concerns. S&P Global Ratings cut it to junk territory this week, following Moody’s Ratings and Fitch Ratings.
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