China state banks embrace home rental financing at risk of profit loss

The government-encouraged pivot comes at a risk of low returns for the lenders.

Reuters reports that China’s largest state banks have been offering a greater number of rental housing financing products amidst prodding from the government to make homes more affordable as property prices skyrocket. 

The big state banks have pledged around $467b (3t yuan) in rental housing financing including funds for real estate developers, leasing firms and tenants, according to Reuters calculation.

China Construction Bank has been giving loans to renters at ultra-low interest rates with long repayment periods whilst Industrial and Commercial Bank of China also launched a similar product in Guangzhou and Bank of China has issued its first loan to renters in Xiamen.

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However, the banks may be taking in more than they can chew as loans have to be priced below market rates due to mounting pressure to lend support to the government’s home rental push, even as it comes at the risk of profitability.

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“After CCB launched the products we looked into it closely, but only to find that was not something we could afford - interest rates were just too low to cover the cost of funding,” an officer at one of the country’s 12 joint-stock banks said, declining to be named. “Only deep-pocketed large state banks can bear the cost.”

Here’s more from Reuters: