China's lenders worry about loan safety

09:05, April 12, 2010      

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Increasingly worried about safety of its bank loans, China's economic officials have called for sterner oversight, especially, on previously scantily-regulated lending to urban property investors.

Liu Mingkang, chairman of China's Banking Regulatory Commission, ordered China's state-owned lenders to reassess their risk exposures and submit reports by the end of June. Economists are now concerned about the nation's credit boom last year might lead to bad loans in the banks.

Although China has warded off the worst of the global economic turmoil, the government is now dealing with the after-effects of its unprecedented remedy, 14 trillion yuan (US$1.8 trillion dollars) in bank lending and government stimulus.

Worries are rising now, that some of bank loans may sour. Liu, the top banking regulator, announced an aggressive plan Sunday in Hanna, China's southern tropic island, for all the big lenders to assess the safety of their loan portfolios, especially, to the provincial and local investment companies that are linked with local governments in their rush to ante up economic growth rates last year.

To control the menace of skyrocketing urban housing prices, Liu suggested the lenders raise the down payment for a second home-buying mortgage to 50-60 percent, from previous 30-40 percent.

It is widely believed that property investors and gamblers, from both home and abroad, have borrowed heavily from banks, and snatched a fairly good number of homes in major Chinese cities, in their hope that China's urban housing prices will keep growing. The gouging of the ready-to-live apartments has led to an explosive cycle of price rises since the beginning of this year. In Beijing, the housing price has risen more than 40 percent in 2010.

Economists and officials are now concerned about a sudden rush of bad loans in the banks' balance sheets, which will impede the security of China's financial system.

"China is now carefully monitoring the risks of property loans with more money entering the property market as speculation rises", Liu said.

Meanwhile, global investment banks are also warning of potential asset bubbles forming in China. With Chinese economy awash in money, housing prices are soaring and inflation is rising, they warned.

China is also facing a possible slowdown peril, they say. The domestic demand created by supercharged investment, resulting from government stimulus and torrents of bank loans, may flag as the stimulus winds down, leaving China still partly in need of export markets in the U.S. and Europe.

By People's Daily Online


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