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Banks align lending to cool measures

(China Daily)
Updated: 2006-07-25 08:54

For that reason the move taken by Bank of Communications (BoCom) in Shanghai earlier this month, to offer better terms to genuine homebuyers and cut back on lending to speculators, was considered to have set an example for other banks that are seeking to draw a similar line. The bank said it would offer homebuyers 30-year mortgage loans of up to 80 per cent of the value of properties of no more than 90 square metres at preferential interest rates that are at least 10 per cent lower than the average for other borrowers.

Ni Erkang, head of BoCom's policy department, said these terms could help qualified applicants, mostly first-time homebuyers, to save 30,000 to 40,000 yuan (US$3,750 to US$5,000) in total interest payments on a loan of 1 million yuan (US$125,000.)
"Our proposal complies with the government's measures to clamp down on excessive speculation and answers the central bank's call to be more selective about borrowers," Ni said.

It is good for BoCom too, Ni added.

"The attractive terms we offer to genuine homebuyers can increase our mortgage loan portfolio and, at the same time, reduce risks," he said. Mortgage lending accounts for an estimated 10 per cent of BoCom's total profit.

Meanwhile, BoCom has introduced other measures that will make it easier and cheaper for homebuyers to obtain mortgage financing. These measures include preferential interest rates, flexible repayment terms and reduced, or in some cases exemption of, handling charges. Credit-worthy customers can borrow up to 500,000 yuan (US$62,500) in unsecured loans.

But speculators need not apply, unless they are willing to advance a down payment of at least 40 per cent of the value of the property and pay higher rates ranging from 20 per cent to 30 per cent above the average.

Ni said BoCom was becoming increasing stringent in processing mortgage loan applications.

"Our assessment staff have been instructed to pay greater attention and apply a stricter criteria to the location of the property, the age and condition of the building and the price of the property when it was new," said Ni.

Indeed, banks around the nation are taking a much more cautious approach to mortgage lending. Huaxia Bank in Beijing, for instance, is more "critical" in approving loans for investment purposes, said Zheng Jing, manager of Huaxia's personal loans centre.
"Our approach is to raise the down payment percentage and increase the interest rates for loans to investors and speculators," she said.