Level below Western countries but rising fast

Updated 2017-07-10 10:00:36 Global Times
(Graphics/GT)

(Graphics/GT)

The leverage ratio of Chinese residents is under control but the structure is improper, with excessive growth in household mortgage loans becoming a lurking danger, experts said.

As of May, domestic household deposits were at around 63 trillion yuan (.3 trillion), while the amount of loans to domestic residents soared to 36.4 trillion yuan from 8.8 trillion yuan in 2010, according to the latest data from the People's Bank of China (PBOC), the country's central bank.

The growth mainly comes from a surge in housing mortgage loans in the last several years, Liu Yuhui, a professor at the Chinese Academy of Social Sciences, told the Global Times on Sunday.

In 2016 alone, housing loans increased by 4.8 trillion yuan, much higher than the 2.5 trillion yuan growth in the year before, according to a report the PBC released on Thursday.

Liu Xuezhi, a senior analyst at Bank of Communications, agreed, saying that many people need to put 60 to 70 percent of their income toward paying mortgage loans.

"Besides, over-consuming is a trend among young people, especially those born after 1990 and 2000, and thus it's understandable that the growth of loans has outpaced that of deposits," Liu noted.

Slower growth of deposits compared with loans means that the domestic banking system is facing liquidity stress and high debt costs, according to Liu Yuhui. So a real estate bubble and financial market bubble could lead to systemic risks in the financial sector and the real economy, as well as putting pressure on the yuan exchange rate, he added.

Currently, many commercial banks have used 70 to 80 percent of their credit limit for the whole year, domestic newspaper the China Times reported Sunday, citing a report from China International Capital Corporation.

Though the level of domestic household loans is not very high, it is growing rapidly, Liu Xuezhi warned, noting that it may be a hidden danger for the smooth development of the economy and society.

Domestic household loans accounted for 44.4 percent of GDP by the end of last year, compared with 79.5 percent in the U.S., 62.5 percent in Japan and 87.6 percent in the UK, financial news outlet eastmoney.com reported Sunday, citing a report from the Institute for Advanced Research at the Shanghai University of Finance and Economics.

However, the figure has risen by nearly 14 percentage points in four years from 30.7 percent in 2013, said the report.

The report also said that the ratio of mortgage loans to residents' disposable income may in 2020 reach the peak seen in the U.S. just before the financial crisis.

Cutting mortgage loans

After a slew of measures to curb the overheated real estate market in March, including raising loan rates, new housing loans dropped nearly 100 billion year-on-year to 611 billion yuan in May, data from the PBC showed.

Mortgages are expected to be further tightened to cool the real estate market in the second half of the year, Liu Xuezhi said.

Following in the footsteps of the first-tier cities - Beijing, Shanghai and Shenzhen and Guangzhou in South China's Guangdong Province - many banks in Zhengzhou, capital of Central China's Henan Province adjusted mortgage rates to 10 percent or even 20 percent above the benchmark mortgage rate for first-time home buyers, the Xinhua News Agency reported Sunday.

Liu Yuhui said that the nation's overall loan volume will remain high this year.

With strengthened financial supervision, shadow banking and use of the bond market are expected to shrink, so individuals and companies will apply to banks for loans, he explained.

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