(ATF) Banking authorities in China have moved to block the use of business loans as mortgages in an attempt to head off a property bubble.
From now on banks are not allowed to grant business-purpose loans to shell enterprises without proof of actual operations. The new rules further strengthen the qualifying standards for loan applicants, to prevent the inflow of business loan cash into the real estate market, the Hangzhou Daily reports.
The country’s Banking and Insurance Regulatory Commission, its Ministry of Housing and Urban-Rural Development and the People's Bank of China have jointly issued a ‘Notice on Preventing Business Loans from Illegal Flowing into the Real Estate Sector’.
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Their top priority is to curb the illegal inflow of personal consumption loans and business loans into the real estate market.
Banks will no longer be allowed to issue operating loans to enterprises whose capital flow does not clearly match their operating conditions.
If it is discovered that a loan has been misappropriated in the real estate sector, the loan will be recovered immediately and the credit line of the enterprise reduced.
This regulations are mainly targeted at business loans, especially to small and micro business owners and individual industrial and commercial households, and working capital loans – mainly in manufacturing and commerce.
The state has encouraged loans to small and micro business owners and the manufacturing industry but there are limits on mortgage loans but the demand for those loans is stronger.
But after six years of exponential growth, it is now difficult for commercial banks to continue to increase the balances on small and micro loans. Also, business loans issued to small and micro enterprises can involve fake business flows, unreliable tax information, chaotic corporate governance, single business models and risks that are difficult to control.
So the best starting point for loaning banks is still the business owners’ property. This has meant the competition for high-quality small and micro customers from major banks has become more intense as they ask for business loans which they invest in property.