Take the latest batch of earnings from China’s big state lenders. They show a substantial shift in lending toward the property market and away from companies. China Construction Bank this week reported residential mortgage lending rose almost 30% in the first half of this year compared with the same period last year. Meanwhile corporate lending fell 2%. At Bank of China, mortgages rose by more than a quarter.Lending into a housing bubble is risky when leverage is soaring. Recall: China Mortgage Lending Grows 32.2pc in 1H 2016, Leverage Soars
On the face of it, banks are moving away from risky lending. That helps their capital cushions because for every loan extended to a company, banks assign a 100% risk-weight. For residential mortgages, banks only have to set aside half that.
Haitong Securities says easy money, higher prices and strong sales are helping to drive credit growth, along with rising leverage. In 2011, the average ratio of new loans to sales was 17.3 percent. In 2015, this increased to 36.7 percent. In 2016, it has hit 56.5 percent, a new all-time high. At the peak of the U.S. housing bubble in 2007, this ratio was 52.6 percent.Back to the WSJ article, the outlook isn't good when mortgages are already going bad:
Lending into the property market would make more sense if the mortgage loans weren’t going bad so fast. At CCB, while mortgage nonperforming loans accounted for only 6% of total NPLs, they rose 67% on the year compared with 26% for all loans. And that’s with prices rising nationally, and rising sharply in the biggest cities.China Construction Bank and Agricultural Bank led the way with 62 percent and 64 percent of new loans going to individual residential mortgages, fThe big four banks increased their mortgage lending 56 percent overall, and already have loaned 80 percent of the 2015 full year total.
Minsheng stands out for new loan growth relative to its outstanding mortgages. The bank lent 80.5 billion yuan in the first half, lifting its outstanding mortgages to 195 billion yuan.