JPMorgan flags ‘risk’ as China mulls unsecured loans for developers

NEW DELHI: JPMorgan Chase has expressed concerns about China permitting banks to offer unsecured loans to eligible developers and warned it “would be a risky move” for lenders, SCMP reported.
The measure “would be negative for banks as it would raise concerns about national service risk and credit risk in the medium term. ”
“Implementation would be challenging, as banks could circumvent such guidance due to credit risk concerns, ” SCMP quoted analysts Katherine Lei and Karl Chan as saying.
China is considering letting banks give loans to certain construction companies without any collateral to free up capital for debt repayment, according to Bloomberg.
According to the report, this step is one of several actions aimed at addressing China’s ongoing property crisis, which has led to many companies failing to meet their financial obligations.
It has also raised concerns about the possibility of financial troubles spreading in the markets.
Officials are reportedly in the process of preparing a list of 50 property developers, including companies like Country Garden Holdings and Sino-Ocean Group, who would be eligible for financial assistance.
JPMorgan recommends buying property shares and selling bank shares if the information about unsecured loans becomes a reality.
The analysts expect that ongoing positive updates could boost property shares in the near future, although they caution that this positive trend might not last.
They also said that any additional financial support for private developers is likely to be provided selectively and with certain conditions, SCMP reported.

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