Economy

Chinese residential property owners are rushing to pay off their mortgages early, heaping pressure on commercial banks that were already struggling to identify attractive lending opportunities.Several state bank managers told the Financial Times that branches in Beijing and Shanghai had experienced a 20 per cent increase in mortgage prepayments this year.Analysts said the managers’ accounts were in line with recently published national loan data. “Prepayment is a desire to reduce leverage, it shows declining demand, which is consistent with the macro data we’ve seen,” said Nicholas Zhu, senior credit officer at Moody’s Investors Service.The push by Chinese borrowers to repay their mortgages early comes against the backdrop of falling returns on investments, the economic disruption of Beijing’s zero-Covid policy and a liquidity crisis that has pummeled the property sector. This has led many residential property owners to try to reduce interest payments.The outstanding mid- and long-term household debt — which mainly consists of mortgages — increased just 2.9 per cent during the first six months of 2022, down from 5.2 per cent in the second half of 2021 and 7.3 per cent over the same period a year ago, according to data published by the People’s Bank of China.At the same time, domestic currency bank deposits by Chinese households rose Rmb10.3tn ($1.5tn) in the first half of 2022, an increase of about 13 per cent compared with the same period a year earlier and the largest expansion for any six-month period. By contrast, household borrowing grew just 8 per cent, its slowest pace since 2007.Many of the individuals repaying mortgages own more than one property, have ready access to cash and have been paying higher annual interest rates of 5.5-6 per cent that banks charge for loans on second or third homes.Bill Chen, a self-employed consultant in Beijing, took out a Rmb1.25mn, 25-year mortgage in 2020 to buy a second apartment in the Chinese capital. But rental income of Rmb6,500 a month does not cover his monthly mortgage payments of Rmb7,826, three-quarters of which is interest, and with no attractive alternative investment options, Chen decided to repay the mortgage this summer.“I prefer predictable returns and saving on the interest on my home loans seems to be the only predictable returns [I can get] for now,” he said.Falling property prices also encouraged Chen to pay off the mortgage in order to be ready to sell the apartment if its value declines further. Chinese owners usually have to clear any mortgage before starting a transfer of property ownership.Yan Yuejin, research director of E-house China Research and Development Institute, said the prepayment trend reflected growing caution among Chinese consumers as Beijing’s drive to rein in indebted property developers hit prices and cut the yields of wealth management products linked to the sector to less than 4 per cent.Tan Yifei, founder of Jince Frontier, a Beijing-based consultancy, said the policy was in line with the government’s broader economic goals. “A deleveraging in household debt could be a good thing for financial stability, and is in line with the original intention of policymakers to defuse the risks of property bubbles,” he said.Chinese household indebtedness, which is measured by comparing debts to GDP, soared to 62 per cent by the end of 2021 from less than 5 per cent in 2000, data from the National Institution for Finance and Development showed.But increasing prepayment will add to pressure on Chinese commercial banks, which consider mortgages among their highest quality assets, and make it more difficult for them to meet government lending targets. “Lenders dislike prepayments,” said Yan. “If prepayment surges too much, they’ll fail to achieve the annual lending target set by regulators.”China Merchants Bank said its retail business, which mainly consists of mortgage and credit card loans, accounted for a smaller proportion of new lending in the first half of 2022 and was far below its target of 60 per cent. The bank’s net interest margin, a crucial profitability indicator, narrowed by 4 basis points to 2.44 per cent in the first six months. Bank of Communications, China’s sixth-largest lender by assets, said on August 1 that it would charge a penalty of 1 per cent of the loan principal for early repayment of home loans and business loans. The bank, which usually waived such penalties, deleted the notice after receiving a wave of complaints.

The People’s Bank of China has made some effort to shift sentiment and support homebuyers, including slashing the five-year loan prime rate, a reference rate for mortgages, by 15 basis points to 4.3 per cent last week. But most mortgages issued before 2021 were set at higher fixed interest rates and those on floating rates can only be adjusted once every 12 months. That means some borrowers are keen to repay their mortgages this year to try to obtain a cheaper loan.“I’m ready to clear my mortgage and sell the house, then buy a bigger flat for my family and apply for loans at a lower rate,” said Shanghai-based Bella Jiang. “Cost-saving should be done ahead of time. I don’t want to let the banks sit back and effortlessly earn interest from me when the economic outlook is already so poor.”

Video: Evergrande: the end of China’s property boom More

Bank of Korea Governor Rhee Chang-yong said his bank would closely watch the Fed’s policy decisions as the volatility in global markets has increased, the central bank said in a text message to reporters.”(Powell’s speech) was not much different from what the Bank of Korea thought when it held a meeting to set interest rates on August 25, and therefore, there will be no change in our policy management,” Rhee was cited as saying.Risk assets and bonds were hit by broad selling after Powell said on Friday the Fed would continue to tighten monetary policy to bring down inflation even as those rate increases cause pain for households and businesses.Rhee told Reuters in an exclusive interview soon after Powell’s speech his bank would not likely end its tightening cycle before the Fed.The BOK was among the first central banks to abandon pandemic-era monetary stimulus, raising its key policy rate by 2 percentage points since August last year to 2.5%. More

SEOUL (Reuters) – South Korea said on Tuesday it would cut annual government spending for the first time in over a decade next year, as it seeks to curb its pandemic-era stimulus and help the central bank rein in a red-hot economy.Unveiling the first budget proposal under right-leaning President Yoon Suk-yeol, the finance ministry said government expenditure will be 639 trillion won ($473 billion) in 2023.That is 6% smaller than this year’s spending after two supplementary budgets, and would be the first annual decline in spending since 2010, assuming there are no additional budgets for 2023.Excluding extra budgets, South Korea’s 2023 spending will grow by 5.2%, the slowest since 2017.The move marks a shift away from aggressive fiscal spending under predecessor Moon Jae-in’s left-leaning government in recent years and from the massive stimulus measures taken during the pandemic to help the economy withstand the COVID-19 crisis.It comes as the Bank of Korea, which has been at the forefront of a global tightening cycle, has raised interest rates by a total of 2 percentage points since August last year.By contrast, governments from Australia to Canada have continued expansionary fiscal policies so far even as their central banks have raised rates to tackle soaring inflation.”The government is shifting its fiscal policy stance completely to ‘sound financing’ to secure fiscal sustainability, improve external credit standing and spend responsibly for future generations,” the South Korean ministry said in a statement.To achieve the 2023 spending cut, the government said it would “transfer some public projects to the private sector” and would cut wages of senior officials at the highest levels of government, according to the budget. But the budget also foresees an increase in social welfare expenses for low-income earners and the vulnerable, with demand for welfare spending only likely to grow in a rapidly aging economy. South Korea’s birth rate hit a fresh record low of 0.81 child per woman last year.South Korea’s ratio of fiscal deficit to gross domestic product (GDP) will narrow to 2.6% next year from an estimated 5.1% this year after extra spending, the finance ministry said.The debt-to-GDP ratio will fall for the first time in five years to 49.8% from 50.0%, according to the ministry. The Yoon administration aims to maintain the ratio of fiscal deficit to GDP at a mid-2% level and the debt ratio below the mid-50% level until 2026, and is preparing a bill to make these targets legally binding.The finance ministry said it will issue 167.8 trillion won of bonds in 2023, down from a total of 177.3 trillion won this year. The net increase in treasury bonds is projected at 61.5 trillion won.The government plans to submit the budget plan to the national assembly on Friday.($1 = 1,350.0400 won) (The story corrects headline to clarify that milestone to first spending cut in 13 years, not smallest spending.) More

MELBOURNE (Reuters) -Woodside Energy Group Ltd more than tripled its interim dividend payout on Tuesday after the Australian gas producer posted a five-fold increase in first-half profit on booming oil and gas prices and its takeover of BHP Group (NYSE:BHP)’s petroleum arm. Woodside (OTC:WOPEY) has benefited from soaring liquefied natural gas (LNG) prices as sanctions on Russia after its invasion of Ukraine have forced gas buyers from Asia and Europe to seek alternative suppliers in what was already a tight market.Now among the world’s top 10 independent oil and gas producers, Woodside announced an interim dividend of $1.09 per share, handing shareholders $2.1 billion, more than triple last year’s payout and topping analysts’ forecasts.Woodside’s shares jumped as much as 3.8% after the result, outpacing gains in the broader market.”Our first results since the completion of the merger with BHP’s petroleum business highlight the increased financial and operational strength delivered by our larger, geographically diverse portfolio of high-quality operating assets,” Chief Executive Officer Meg O’Neill said.Woodside posted an underlying net profit after tax of $1.82 billion for the six months to June 30, up from $354 million a year earlier. The result beat analysts’ estimates of around $1.49 billion, according to Visible Alpha. Following the merger with BHP’s petroleum arm, Woodside now owns 100% of the $5.6 billion Scarborough gas project, its biggest growth project, where it has been looking to sell a stake on and off for more than 18 months.O’Neill said the company was in talks with “high quality” prospective partners, but in light of the strength of the LNG market it would only sell if it gets fair value for what is “an extraordinarily important asset for the future of Woodside”, due to start producing in 2026.”But again, we’re not going to fire sale this critical asset,” O’Neill told analysts on a conference call.She did not comment on whether the company was still looking to sell as much as a 50% stake in Scarborough.Woodside has begun a strategic review of all the assets in the enlarged business to map out its next growth project, which could include new energy, and Browse and Greater Sunrise gas off northwest Australia, she said. More

ISLAMABAD (Reuters) – Early estimates put the damage from Pakistan’s recent deadly floods at more than $10 billion, its planning minister said on Monday, adding the world has an obligation to help the South Asian nation cope with the effects of man-made climate change. Unprecedented flash floods caused by historic monsoon rains have washed away roads, crops, infrastructure and bridges, killing at least 1,000 people in recent weeks and affecting more than 33 million, over 15% of the country’s 220 million population. The climate change minister has called the situation a “climate-induced humanitarian disaster of epic proportions.””I think it is going to be huge. So far, (a) very early, preliminary estimate is that it is big, it is higher than $10 billion,” Ahsan Iqbal told Reuters in an interview.”So far we have lost 1,000 human lives. There is damage to almost nearly one million houses,” Iqbal said at his office.”People have actually lost their complete livelihood.”Iqbal rated the recent floods worst than those that hit Pakistan in 2010, for which United Nations (UN) had issued its largest ever disaster appeal. The minister said it might take five years to rebuild and rehabilitate the nation, while in the near term it will be confronted with acute food shortages.To mitigate food shortfalls, Finance Minister Miftah Ismail said the country could consider importing vegetables from arch-rival India.The two neighbouring countries have not had any trade for a long time. “We can consider importing vegetables from India,” Ismail told local Geo News TV, adding other possible sources of food imports included Turkey and Iran. Food prices have already shot up due to flooded crops and impassable roads. India Prime Minister Narendra Modi said he was saddened by the devastation caused by the floods. GRAPHIC: Flooding in Pakistan https://graphics.reuters.com/PAKISTAN-WEATHER/FLOODS/movangexdpa/graphic.jpg CLIMATE CHANGE VICTIMSocial media users posted videos showing stranded people and whole families washed away by floodwater. Reuters was unable to independently verify the footage.Southern, southwestern and northern Pakistan have been the hardest hit by the floods, which have swept large swaths of farmland and stored crops, also isolating the regions from rest of the country for the last several days.Tens of thousands of families have left their homes for safer places, moved in with their relatives, or to state-run camps, while others have been spending nights in the open, waiting for help including tents, food and medicine. Pakistan has appealed for international help and some countries have already sent in supplies and rescue teams.The nation’s foreign minister told Reuters on Sunday he hoped financial institutions such as the International Monetary Fund would provide financial aid, taking the economic cost of the floods into account.However, Iqbal said any formal requests for financial help would need to wait until the scale of the damage was known, something Pakistan was now evaluating with partners, including the World Bank and the Asian Development Bank.The Chinese government said on Monday it will provide additional humanitarian aid, including $300,000 in cash and 25,000 tents. China had already sent 4,000 tents, 50,000 blankets and 50,000 waterproof tarps to Pakistan. China’s President Xi Jinping also called his Pakistani counterpart Pervez Musharraf to express his condolences on the severe flooding, according to Chinese state media.The Canadian government on Monday announced $5 million in funding for humanitarian assistance to Pakistan to deal with the flooding.Iqbal also said the world owed Pakistan, which was a victim of climate change caused by the “irresponsible development of the developed world.””Our carbon footprint is lowest in the world,” he said. “The international community has a responsibility to help us, upgrade our infrastructure, to make our infrastructure more climate resilient, so that we don’t have such losses every three, four, five years,” he said.”Those areas which used to receive rainfall aren’t receiving rainfall and those areas which used to receive very mild rains are receiving very heavy rainfall,” he added.Iqbal said 45% of cotton crops had been washed away with early wheat sowing in southern Pakistan also affected, as large swaths of land remained inundated with flood water, and severe damage to rice fields as well as vegetable and fruit crops.Pakistan’s finance ministry in its latest economic outlook update has warned of the impact on critical seasonal crops, particularly cotton, which is key for Pakistan’s textile sector that makes up more than 60% of the country’s exports. Analysts say the impact could be devastating for the country, which was already in the midst of an economic crisis, faced with high inflation, a depreciating currency and a current account deficit.The IMF on Monday approved long awaited over $1.1 bln in bailout funds to resume a programme that had been stalled since early this year.($1 = 221.7500 Pakistani rupees) (Additional Reporting by Jibran Ahmad in Peshawar and Gul Yousafzai in Quetta and Kanishka Singh in Washington; Additional reporting by Beijing Newsroon; Writing by Asif Shahzad and Charlotte Greenfield; Editing by Hugh Lawson, Tomasz Janowski, Cynthia Osterman, Sandra Maler and Lincoln Feast.) More

“The Federal Reserve will continue to go higher for a while until starting to see results and we will have to do practically the same,” board member Jonathan Heath said.Heath acknowledged that inflationary pressures were being felt around the world, but said Mexico’s economy had certain idiosyncrasies that have complicated the problem, pointing to what he called low competitiveness in “many sectors”.”A restrictive monetary policy will not be able to solve this problem, but it can help to limit it,” Heath said.Monetary policy consistent with current inflationary pressures should help to mitigate second round effects, he added.Otherwise, the problem risks becoming worse and cementing structural issues that feed inflation, Heath said. More

The IMF has approved the disbursement of more than $1.1bn to Pakistan, reviving a stalled $7bn assistance package expected to help stave off default despite a severe economic crunch and devastating floods.The IMF’s board in Washington authorised the expenditure after Prime Minister Shehbaz Sharif’s government introduced austerity measures, including sharply increasing domestic fuel prices. “The formal resumption of an IMF program is a major step forward in our efforts to put Pakistan’s economy back on track,” Sharif wrote on Twitter.Antoinette Sayeh, deputy managing director and acting chair of the IMF’s executive board, said maintaining the reform measures would be crucial. “Steadfast implementation of corrective policies and reforms remain essential to regain macroeconomic stability, address imbalances and lay the foundation for inclusive and sustainable growth,” she said, including strengthening governance at state-owned enterprises. But the unpopular austerity measures have proved politically perilous at a tumultuous time for the country of 220mn. Inflation has soared, with a basket of “sensitive” food and fuel prices last week rising 45 per cent from a year earlier. Flooding has killed more than 1,000, affected more than 30mn people and destroyed rice and cotton crops.Sharif’s arch-rival Imran Khan, who was ousted as prime minister in April as the economic crisis was brewing, has surged in popularity and his Pakistan Tehreek-e-Insaf party has held raucous rallies pushing for immediate elections.

Former prime minister Imran Khan has held a series of mass rallies, generating huge levels of support among Pakistanis and galvanising opposition to the government © Sohail Shahzad/EPA-EFE/Shutterstock

The government hopes that financial assistance from the IMF, as well as China and Saudi Arabia, will buy time for inflation to ease ahead of polls, which must be held by the second half of next year.“I could see why people would not be so enthusiastic but my take is this: If I’d let this country default — two or three months ago it would have defaulted — things would have been much worse,” Miftah Ismail, Pakistan’s finance minister, told the Financial Times in an interview.The government can now “show the people of Pakistan that we are competent, that we know how to deliver,” he said, speaking before the disbursement had been finalised. “People will understand . . . that PTI had brought us to the brink of default and we saved them. But certainly, the economy has to pick up.”Pakistan is one of a number of countries facing acute economic distress following the surge in global prices after the Covid-19 pandemic and Russia’s invasion of Ukraine. Among South Asia countries, Sri Lanka defaulted in May and Bangladesh and Nepal are struggling.Pakistan’s IMF programme, one of a dozen since the 1980s, was negotiated in 2019 under Khan, but stalled multiple times as his government resisted demands to implement unpopular spending cuts. After Monday’s announcement, the IMF is set to provide about $4bn to Pakistan over the coming year.But Islamabad’s external debt obligations have surged, with repayments for the financial year rising to $24bn from about $14bn two years ago, according to research firm Macro Economic Insights.

The worst flooding in Pakistan in decades this past week has displaced of hundreds of thousands of people © Asim Tanveer/AP

Pakistani officials also expect Saudi Arabia to renew a $3bn central bank deposit, and Qatar and the UAE to invest about $3bn and $1bn, respectively, though analysts warned that the timing of those outlays remained unclear.The lending pledges have done little to stem frustration among Pakistanis. “Life has become extremely expensive,” said Osama Abbassi, a cook in Islamabad and father of six. “I cook food for others which I can just not afford for my family.”The worst floods in decades have complicated the economic outlook, with hundreds of thousands of people in Sindh, Balochistan and Khyber Pakhtunkhwa, three of Pakistan’s four provinces, displaced because of the torrential rain.Akram Khan fled his village in Khyber Pakhtunkhwa for Islamabad with his family last week. “Overnight, rain deluged our entire home,” he said. “We barely escaped.”Authorities said the floods could hurt the country’s ability to bounce back, and have called for international aid, warning that the damage to crops could stoke food inflation. “This is going to really hurt us,” Ismail said.Investors also remain wary. While sovereign bonds have rebounded from lows since Sharif’s government announced a preliminary IMF agreement last month, equities and the rupee remain volatile.Sakib Sherani, head of Macro Economic Insights, argued that despite the IMF deal, rising debt obligations meant Pakistan may yet be forced into debt reprofiling with the IMF. “We have a hump coming up for the next few years in our external debt repayments,” he said.

Sharif’s government wants time for its economic strategy to deliver results before calling elections, but critics said that prolonging the political uncertainty would hamper the recovery.In opposition, Khan has mobilised his base with mass rallies that have inflamed political tensions. The former prime minister is on bail after police this month charged him with terrorism-related offences for allegedly threatening officials in one of his speeches.“Economic stability in Pakistan is now linked with political stability . . . If I were an investor in this country, I would think twice”, said Ashfaque Hasan Khan, a former member of the PTI government’s economic advisory council. “The only solution is a free, fair and transparent election as soon as possible.”Sharif’s government has argued that elections would serve only to further destabilise the recovery. “Give us a few months,” Ismail said. “Things will get better, but I understand they’re very difficult right now.”But for victims of the flooding, many of whom have lost everything, there is little to look forward to. Khan showed a photo on his phone of a party two weeks ago at his no- abandoned house to mark the birth of his son. That would be, he said through tears, “our last celebration ever”. More

Another dam has burst, with the two-year rise to a 15-year high just shy of 3.50% flooding global markets with extra uncertainty and fear.Wall Street managed to claw back some of its earlier losses on Monday but still closed in the red, a noteworthy development given the extent of Friday’s selloff. The failure to bounce back at all is a reflection of how jittery investors are right now.Not only are they having to adjust to a hawkish Federal Reserve, the European Central Bank also appears poised to accelerate the pace of interest rate hikes. Bonds are selling off globally, the dollar is surging, and no corner of the investment world is being spared the fallout. The scale of the two-year U.S. bond yield rise is truly remarkable – a year ago it was as low as 16 basis points, today it nudged 350 bps. With the Fed likely to continue tightening, few would bet against it rising further.(Graphic: U.S. Treasury 2-year yield – https://fingfx.thomsonreuters.com/gfx/mkt/akpezkdmlvr/us2y.png)China’s travails aren’t helping either. The yuan has sunk to a two-year low against the dollar and the psychological 7.00/$ barrier is within touching distance. Chinese corporate earnings reports on Tuesday could give further clues on the health – or otherwise – of the property and financial sectors, with ICBC, Bank of China, China Construction Bank (OTC:CICHF), and China Resources Land all releasing first-half results. Japanese jobs data is the headline release on Asia’s macro calendar on Tuesday – the unemployment rate is expected to hold steady at 2.6% – while rising rates are expected to put a dent in Australian house building approvals.Key developments that should provide more direction to markets on Tuesday: Japan unemployment (July)Australian building approvals (July) More