Banks Review Evergrande Mortgage Stop Following HKMA Inquiries

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(Bloomberg) – At least two of Hong Kong’s largest lenders are reconsidering the suspension of China Evergrande Group’s unfinished property mortgages after decisions were questioned by the city’s de facto central bank, according to people familiar with the matter.

Potential reversal of HSBC Holdings Plc and Bank of China Ltd. in Hong Kong comes just days after banks suspended mortgage lending amid growing doubts about Evergrande’s financial health.

The Hong Kong Monetary Authority asked banks to explain the situation on Thursday, asking if employees and homebuyers had been notified that new loans for two unfinished Evergrande residential projects were on hold. Information. One bank official interpreted the HKMA’s questions as a subtle request to rethink the stops.

The episode could spark rumors that regulators in China and Hong Kong will take steps to prevent a rapid loss of confidence in Evergrande, given the potential systemic risk the collapse could pose to the Chinese financial system.

Fears of running out of cash on Evergrande this week prompted the company’s stock to plunge 26%, the sharpest five-day drop since March 2020. The developer’s offshore bonds maturing in 2025 are trading at about 53 cents per dollar, suggesting a high probability of default.

At least four of Hong Kong’s top lenders, including HSBC, the local branch of the Bank of China, Hang Seng Bank and Bank of East Asia, decided to suspend mortgage lending earlier this week after reassessing the risks of such loans, sources said. familiar with this issue. It’s unclear if Hang Seng Bank and Bank of East Asia have joined their counterparts in reimagining stops.

Representatives from HSBC, Bank of China (Hong Kong) and Bank of East Asia did not comment when asked Thursday if they canceled the suspension. HKMA said it communicates with banks on various issues, but does not comment on details as part of the policy. Evergrande did not immediately respond to requests for comment.

Evergrande founder Hui Ka Yan is under increasing pressure to reassure markets that his company can meet its $ 301 billion commitment. Analysts believe the sell-off could continue if Hui doesn’t speed up asset sales, attract new strategic investors, or get help from the Chinese authorities.

Following reports of the suspension of mortgage lending earlier this week, Evergrande said it has good relations with many lenders in Hong Kong without impacting its local operations. The company declined to comment on any actions by individual banks.

Evergrande said it is on track for its projects in Hong Kong and is confident that Emerald Bay II will be completed in August on schedule. Completion of Vertex construction in Cheung Sha Wan is scheduled for late October.

HSBC, the Bank of China Hong Kong division, and Hang Seng are the largest mortgage lenders for unfinished residential projects in Hong Kong, with HSBC providing 25% of the market loans in June, according to mReferral Corporation (HK) Ltd., a mortgage company. referral company.

HKMA’s Evergrande inquiries reinforce signs that the Chinese authorities are paying more attention to the developer’s plight. This week, a government official in the northeastern city of Shenyang called on state-owned enterprises to increase their stakes in local credit bank Shengjing Bank Co., one of Evergrande’s most valuable financial assets.

Representatives of China’s chief financial regulator told Hui in a private meeting in late June that he must resolve his company’s debt problems as quickly as possible, stressing the need to avoid serious economic turmoil, people familiar with the matter said earlier this month. Hui told officials that he was talking with local authorities to find a solution, one of the people said.

(Updates with today’s trading from the fifth paragraph.)

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