China's drumroll of policy support for its flagging housing market has met an unlikely foe: banks.
Beijing has tried to revive a flagging housing market as it looks to arrest an economic slowdown, but banks are increasingly worried about bad debts and are not passing on policy steps like interest rate cuts and lower downpayment requirements to home buyers.
The show of independence among state-owned banks comes at an awkward time. On one hand, having banks that lend only when it makes business sense is a coup for China, where reforms are aimed at developing a more market-driven economy.
But the banks' stance means policy is not feeding through to the real economy. And as the housing market accounts for about 15 percent of China's economy, it is crucial to stopping the loss of economic momentum.
"It's difficult because our margins are already squeezed, there isn't much differentiation in the market, so our focus is on how much our capital costs are," said a banker at a top-10 Chinese lender, explaining why his bank is reluctant to lend.
He was referring to the difficulty banks have using their brands to compete in the market; to most Chinese customers, one mortgage is as good as another.
On Sunday, the central bank cut the reserve requirement ratio (RRR) for banks by 100 basis points - the biggest cut since the global financial crisis - following data that showed annual economic growth slowed to a six-year low of 7.0 percent and that property investment was at its weakest since early 2009.
That followed a smaller RRR cut in February, and two interest rate cuts in November and February.
There have also been specific measures to support the housing market: a cut in mortgage rates last September, and allowing banks to offer discount rates and seek lower downpayments on second home loans.
But a survey of 200 bank branches across 12 cities last month by Rong360, a provider of financial data, found none were offering first-home buyers a 30 percent discount on mortgage rates, as they are allowed to, or were giving discounts on second home loans, as was suggested by the central bank.
In fact, not only are banks not offering discounted mortgage rates to second-home buyers, the survey found a majority of banks were charging rates that were above the benchmark level.
"Large banks haven't cut rates because they don't care much about mortgage lending," said a corporate finance head of a developer based in Shenzhen, who declined to be named because they were not authorised to speak to the media.
"Banks look for good investment return, so they'd rather invest in the stock market."
China Everbright Bank, Bank of Communications, Minsheng Banking, China Construction Bank and China CITIC Bank were among the banks with mortgage rates for second-home buyers rates that were 20-30 percent above the benchmark level. None of the banks responded to requests for comment from Reuters.
Cautious in real estate
The jury is out on whether Sunday's policy easing will be enough to spur more bank lending to real estate.
"Mortgage default has been low in China compared to other loans, but banks have been more cautious in the real estate sector in the past one to two years," said Frank Chen, executive director of CBRE China.
One problem has been over-supply. At end-March, China had 649.98 million square meters of real estate to sell, an increase of 10.76 million square meters from February, and housing investment fell to its lowest since 2009.
Average new home prices in China's 70 major cities dropped 6.1 percent last month from a year ago, the seventh consecutive monthly fall, following February's 5.7 percent decline.
Analysts are divided about how long it will take for property prices to reverse their slide, especially in the face of a surging stock market that is winning the competition for investor funds.
Chen said most banks have so far withheld offering discounts on mortgage rates, unlike in 2009 when they had slashed interest rates across the board for first- and second-home buyers.
Back then, banks' confidence was underpinned by a massive government stimulus program, and a belief that the government would take responsibility for bad debts.
But Chen said: "After the RRR cut on Sunday, the discount could be in place soon. We hope some of the liquidity would go to the real estate sector."