Agricultural Bank of China warns branches of loan risks
Caution comes after price cuts at housing projects in smaller mainland cities cause panic
Bloomberg in Beijing
Agricultural Bank of China, the mainland's third-largest lender by market value, has warned its branches about credit risks from property lending, two sources said.
The bank circulated a letter saying price cuts at housing projects in some smaller mainland cities had caused panic in the property market, they said, adding that the letter encouraged branches to take steps to avoid credit risks but demanded no specific measures.
The collapse of Zhejiang Xingrun Real Estate with 3.5 billion yuan (HK$4.4 billion) in liabilities last month fuelled concerns that debt could overwhelm more developers. The city government of Fenghua, in Zhejiang province, where Xingrun is based, said on March 19 it had met officials from six lenders to discuss the company's debt. Agricultural Bank was one of Xingrun's creditors, it said.
"Early signs of the property market cooling may have emerged and we continue to see the property sector as the top risk for China's economy," Zhang Zhiwei, chief economist at Nomura in Hong Kong, said last week. "China's property sector is significantly overinvested."
The value of home sales on the mainland fell 5 per cent year on year in the first two months of this year, the National Bureau of Statistics reported last month. That compared with an almost doubling in sales in the first two months of last year.
Agricultural Bank's loans to property companies amounted to 533 billion yuan last year, accounting for 7 per cent of its outstanding loans. Mortgage loans amounted to 1.29 trillion yuan, or 18 per cent of outstanding loans.
Agricultural Bank said in February that its property lending policy was stable and it would strengthen risk controls over loans to the industry.
The China Banking Regulatory Commission sent out a notice last month urging lenders to better manage soured assets, the Shanghai Securities News reported on Friday, citing sources.
Banks were told to set reasonable annual targets for controlling non-performing loans, it said.
Mainland banks' non-performing loans increased for the ninth consecutive quarter in the fourth quarter of last year to the highest level since the 2008 financial crisis, CBRC data shows.