Chinese banks have been providing real estate developers with illegal loans, according to an investigation by the China Banking Regulatory Commission (CBRC).
According to a document released by the CBRC, banks had issued bogus mortgages worth several billion yuan by the end of June 2006 in the knowledge that borrowers had lied about which homes they were buying and the size of their registered capital. They were also found to have issued more than one mortgage for only one home.
The industry regulator conducted nationwide checks on loans for real estate development projects and loans for individual home buyers, which were extended by some branches of major commercial banks. .
It found that one state-owned commercial bank - the name was not disclosed - had issued 4,718 loans on bogus mortgages, valued at 1.31 billion yuan (169 million U.S. dollars), six percent of the total loans for home buyers that were checked.
Another state-owned commercial bank granted 3,716 loans, valued at 734 million yuan (95 million U.S. dollars), for individual home buyers, 3.23 percent of the total credits investigated.
The total number of suspect loans accounted for nearly 30 percent of those checked, sources with the CBRC said.
The document ordered state-owned and joint-stock banks to intensify scrutiny of real estate projects and clamp down on illegal borrowing.
Several bogus mortgage cases have been exposed in China over the past few years, including a one-billion-yuan case at China Construction Bank Guangzhou branch and a 645-million-yuan case at Bank of China Beijing branch. But they were only the tip of the iceberg, CBRC sources said.
The document also banned the issuance of credit to real estate developers who have inadequate capital and forbid loans to be granted for property development purposes in the name of circulating funds.
A major factor behind the banks' enthusiasm for lending to real estate projects was the current buoyancy of the property market, industry observers said.