CBRC to banks: re-check loan risks

08:46, December 11, 2009      

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The China Banking Regulatory Commission (CBRC) has required commercial banks to self-examine all their loan risks, according to a report by the China Securities Journal Thursday.

Internal checks of risks including re-examination of real estate loans and personal loans, both aimed to curb individuals' borrowings diverting into the stock market or other risky investment areas, are to be completed by June, the report said.

The CBRC asked the banks to check all the loans made between November 1, 2008, and October 30, 2009.

A source of a State-owned bank was quoted by the paper as saying that they have required their branch banks to re-examine six types of risks internally, and any violations would be dealt with strictly.

Analysts, however, warned that bank-conducted examinations would have little impact on the diversion of housing loans into the stock market.

Bank loans flowing between the real estate markets and stock markets might create huge bubbles, which could lead to a financial crisis like the sub-prime crisis in the United States, Zuo Xiaolei, chief economist of China Galaxy Securities, wrote in her report.

But preventing such investment diversions could prove troublesome.

"If a customer, who already has 1 million yuan ($146,496), got 1 million yuan in home loans from a bank later and bought both a house and stocks, it is difficult to check if he used loans to buy stocks," said Ding Jianping, director of the mod-ern financial research center of Shanghai University of Finance and Economics, told the Global Times Thursday.

"The banks have neither the ability nor the incentive to supervise the use of the loans they give out," said a person in the credit department in a major Chinese bank Thursday.

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