FT: Chinese banks hit by wave of early mortgage repayments

Chinese banks are faced with a new problem: a significant portion of borrowers began to repay mortgage loans ahead of schedule. As told Financial Times managers of several banks in Beijing and Shanghai, the number of early mortgage repayments has increased by 20% since the beginning of this year.

The desire of borrowers to repay the mortgage loan ahead of schedule means that the lending bank will lose part of the interest payments on this loan. And banks that provide mortgage loans are already suffering from falling investment returns, a slowdown in the country’s economy due to coronavirus restrictions, and a lack of liquidity. All this has already forced a number of banks to lower mortgage rates, according to the FT.

The outstanding medium- and long-term debt of Chinese citizens, which mainly consists of mortgages, increased by only 2.9% in the first six months of 2022, according to the People’s Bank of China. In the second half of 2021, its volume grew by 5.2%, and in the first half of 2021 – by 7.3%. That is, the volume of outstanding mortgage loans is consistently decreasing. At the same time, the amount of funds set aside by citizens on deposit accounts in banks increased by 13% in the first half of the year – this is a record six-month increase for the entire period of statistics.

Finally, the problem with early mortgage payments is superimposed on the mass refusal of citizens to pay mortgages due to the fact that their houses are not ready yet, and developers have already declared either default or bankruptcy. Over the past year, the construction of 8 million apartments across China has been suspended, according to the FT. Buyers of apartments in more than 300 residential complexes have already announced their unwillingness to continue paying mortgages.

Difficulties in the Chinese real estate sector began last fall when became known about the financial problems of the development holding China Evergrande Group, whose debts exceeded $ 300 billion. Since then, three Chinese developers have already declared default on dollar bonds – Evergrande, Kaisa Group and Sunac China.

At the end of July, the media reported that China’s central bank intends to allocate 1 trillion yuan ($148 billion) to refinance distressed real estate to bring the sector out of a protracted crisis.

On the situation in the real estate market in China – in the material “Kommersant” “China smells of a mortgage crisis”.

Kirill Sarkhanyants