China’s banking regulator tells lenders to improve risk management of property loans

China’s banking regulator has asked lenders to step up risk management of property loans amid record gains in house prices that have raised concerns of price bubbles and ballooning debts.

Controlling real estate business risks and adherence to rules on misappropriation of credit funds into property are among measures that banks should take to avoid “systemic and regional financial risks”, the China Banking Regulatory Commission (CBRC) said on its website on Saturday, the day after its meeting for an economic and financial review of the third quarter.

Economists believe the greatest near-term risk for China is a possible correction in the roaring property market, which accounts for about 15 per cent of the nation’s gross domestic product.

More than 20 cities, Beijing, Shanghai, Xiamen and Nanjing, have introduced measures to restrict home purchases after prices this year skyrocketed in many markets – especially top-tier cities.

China’s new home prices rose in September at the fastest rate on record, according to data published by the National Bureau of Statistics on Friday.

Outstanding mortgage loans to individuals rose 33.4 per cent to 17.93 trillion yuan (US$2.65 trillion) from a year ago by the end of September, China’s central bank said on Friday.

As part of stronger overall oversight of wealth management products, banks should strictly adhere to regulations that forbid investment in the real estate sector, the regulator said.

In addition to property, the CBRC also reminded banks of the need to effectively manage credit risks in industries troubled by excess capacity, providing a balance of support and control measures where needed. Lenders should also “fend off” risks in local government debt, it said.