Curb property loans, lenders told

PUBLISHED : Friday, 22 July, 2011, 12:00am
UPDATED : Friday, 22 July, 2011, 12:00am

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The mainland's banking regulator has urged lenders to tighten controls over property loans and credit advanced to local-government financial vehicles.

Lenders should step up oversight of property loans by intensifying the measurement of risk exposure and evaluating collaterals in time, Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), said at a meeting with bankers on Wednesday.

The CBRC would also keep a 'close watch' on risks looming in the property market in second- and third-tier cities, Liu said.

The regulator's remarks follow the State Council's announcement last week that the government would extend home purchase limits from the current 40 cities to more to include some second- and third-tier cities in a bid to tackle the bubbles emerging in the property market.

The index tracking property stocks on the Shanghai Composite Index lost 1.7 per cent yesterday to close at a one-month low.

Bubbles were now 'evident' in China's property market and the government's efforts to rein in prices have not been effective, said He Keng, a financial commission member of the National People's Congress. 'China is faced with two big risks: the property market and local government debts.'

The banking regulator asked lenders to 'unwaveringly' guard against risks of loans extended to local-government financial financing vehicles and to co-operate with local governments cautiously.

The nation's first audit of local-government debt found liabilities of 10.7 trillion yuan (HK$12.92 trillion) at the end of last year, with 79 per cent being bank loans, the National Audit Office said last month.

As much as 30 per cent of the local-government loans may turn sour and become a major contributor to banks' bad debts, ratings agency Standard & Poor's has warned.

Fitch Ratings has repeatedly highlighted the risks in the medium-term outlook for asset quality of mainland banks given the rapid growth of credit since 2008, much of which went to local governments and property-related borrowers with questionable repayment capacity over the medium term.

However, Fitch's long-term foreign currency issuer default ratings for all 16 mainland banks are underpinned by expectations of state support that would be forthcoming in a stress situation, the rating agency said in a report yesterday.

3.5tr yuan

The amount, in yuan, by which China's local government debt burden may have been underestimated, according to Moody's