Bank regulator warns of growing property credit risks
Banks told to report on risk exposure by end-June in bid to avert more bad loans
(HONG KONG) China's banking regulator said it sees growing credit risks in the nation's real-estate industry and warned of increasing pressure from non-performing loans.
Risks associated with home mortgages are growing and a 'chain effect' may reappear in real-estate development loans, the China Banking Regulatory Commission (CBRC) said in its annual report published on its website yesterday.
The regulator has told banks to report on risk exposure by the end of June to help prevent a credit boom from leading to more bad loans. Property-price gains spurred concerns that a record 9.59 trillion yuan (S$2 trillion) of loans extended last year to combat the effects of the global financial crisis may be causing asset bubbles.
China is 'closely monitoring the growth in the volume and the quality of mortgage loans, but we don't think it has reached an alarming level,' said Kelvin Lau, a Hong Kong-based economist at Standard Chartered. 'There are still many tools the central government can use to tackle the problem if things get out of control.'
Credit risks in some industries that have seen a surge in investment may 'emerge soon' as restructuring efforts intensify, the regulator said in the report. The rise in investment exacerbated the problem of excess capacity and over- development, it said.
The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, has dropped 22 per cent this year. Markets in China are closed from June 14 to 16 for a holiday.
'Coming through the global financial crisis, China's banking sector has stepped onto a new level,' CBRC chairman Liu Mingkang said in the report. 'We remain cool-headed about the weaknesses to be addressed and fixed.'
CBRC's report comes as Agricultural Bank of China Ltd, the country's largest by number of customers, prepares to sell shares in Shanghai and Hong Kong in what could be the world's largest initial public offering.
Agricultural Bank may raise at least US$23 billion from the total offering, people with knowledge of the matter said last week. The IPO will likely surpass the US$22 billion sale in 2006 by Industrial & Commercial Bank of China Ltd.
China, the world's fastest-growing major economy, expanded 11.9 per cent in the first quarter from a year earlier. Measures to cool the real-estate market have included a ban on loans for third-home purchases and raising mortgage rates and down-payment requirements for second-home purchases.
Property prices in the country rose 12.4 per cent in May, the second-fastest pace on record, showing little sign yet that the government crackdown on speculation will work to avert an asset-price bubble.
Some banks in China have transferred loans off their balance sheets in an effort to circumvent regulatory requirements and capital and loan-loss provisioning, the CBRC said in the report.
Banks still assume the risks related to loan management and recovery even though the loans are not booked on their balance sheets, it said. As a result, rising risks associated with banks' activities in transferring their exposures off the balance sheet need 'close supervisory attention.'
The watchdog said concerns about bank lending to local government financing vehicles 'weighs high' on its supervisory agenda as some banks have accumulated 'large' exposures to them.
Local governments in China have been raising funds through the vehicles to circumvent regulations that prevent them from borrowing directly. A crackdown on such loans could trigger a 'gigantic wave' of bad debts as projects are left without funding, Northwestern University Professor Victor Shih said in March.
China ordered local governments to ensure repayment of debts by their financing units and concentrate on completing projects already under way. Financing units that fund only public projects and rely on fiscal income to repay debt should stop spending, the State Council said earlier this month. -- Bloomberg
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Boom's shadow: Unabated property price gains have spurred concerns that record loans may be causing asset bubbles. Some banks have transferred loans off their balance sheets to circumvent regulatory requirements and capital and loan-loss provisioning, the CBRC said
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