(Yicai Global) April 1 -- Several major Chinese lenders, including China Construction Bank, Industrial Bank, and Postal Savings Bank of China, have some work to do to conform to the new property loan limits.

China Merchants Bank was also in the group of lenders that recorded higher portions of property or personal housing loans than what will be accepted going forward, revealed in their 2020 earnings reports. But the transition period lasts from two to four years so they are not expected to receive any punishments till then.

The People’s Bank of China and the China Banking and Insurance Regulatory Commission stipulated on Dec. 31, 2020, that property loans should make up not more than 40 percent of state-owned lenders' total tally. The maximum portion of personal housing loans is 32.5 percent. At joint-stock banks, property loans can reach 27.5 percent, and personal housing loans 20 percent of the total.

But financial institutions have been slow to adjust. State-owned China Construction Bank marked 34.73 percent of its loans as personal housing loans. Joint-stock lender Industrial Bank said its corresponding number was 26.6 percent while its share of property loans was 35 percent, both of them in the danger zone.

Origins: the Housing Market 

Before this, mortgages have been looking attractive to lenders. Personal housing loans are high-quality assets as few of them default in comparison to retail loans so banks were increasing their focus on that area, said an analyst. Meanwhile, retail loans and corporate borrowing has been impacted by the Covid-19 pandemic, the person added.

But risks lurk in the overheating housing market. Regulators are looking to restrict capital inflows into the property market via banks as excessive funds could reduce the banking system's stability, said Ryan Heung, senior vice president at Moody’s Investors Service in Hong Kong.

Authorities are aware of the risks in the housing market and have stepped in to create policies that should affect the fields of property and financial services, Lv Jiajin, vice president of China Construction Bank, said during an earnings call last March. The new rules should have little effect on loan growth and the transition period should be long enough for the lender, he added.

Consequences for the Banks

Some banks may need to adjust structurally to meet the regulators’ requirements as personal housing loans have been accounting for a high portion of their total, an industry insider told Yicai Global. 

However, mortgages are high-quality assets so a shift could affect banks' assets, and particularly those of medium- and small-sized lenders, said the insider. Banks are expected to target business loans and credit instead, the person added.

Lenders may face rising non-performing loan ratios in the short-term amid their adjustments by focusing on other types of lending, which could affect their efficiency but the pace is slow so profitability should not be impacted much, according to Moody's.

Editor: Emmi Laine, Xiao Yi