Chinese banks cut loans to bloated industries like steel, cement

Growing jitters about the financial health of bloated mainland industries have prompted many banks to cut lending in these sectors by as much as 20 per cent, banking and industry sources with knowledge of the matter said.

At the same time, the China Banking and Regulatory Commission has called on banks to submit their regular report of outstanding loans owed by various sectors, but has asked them to include loans linked to derivative products and debt financing, the sources said.

The inclusion of these two areas is a "new development", said one banking source.

The move, which comes in the wake of a landmark corporate bond default by Chaori Solar Energy Science & Technology as well as the default of a coal-related high-yield trust product, underscores the regulator's concerns about financial risks posed by heavily indebted sectors, such as steel makers and shipbuilders.

"The specific sectors to be audited are steel, cement, aluminium smelting, flat-glass and shipbuilding," said another bank source, who received a CBRC document outlining the requirements.

It was not clear what derivatives lending or debt financing the CBRC was focusing on.

But the sources said one area of concern may be bank lending to clients who used commodity imports such as steel or copper as collateral.