Banking watchdog warns of mortgage risk, tightening expected

09:59, June 17, 2010      

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China's banking regulator warned Tuesday about growing credit risks in the nation's real estate industry this year, but analysts said mortgage loans so far have not yet reached a dangerous level.

The risks associated with home mortgages may increase later this year, the China Banking Regulatory Commission (CBRC) said in its annual report published on its website.

The CBRC required the banks to closely monitor the credit loans for purchasing land plots and the mortgages for buyers of multiple homes, a sign that it will continue to tighten bank lending.

In April the central government required buyers of second homes make 50 percent down payment and take out loans at a rate 1.1 times higher than the benchmark interest rate.

Analysts said the CBRC's warnings were timely but the financial situation is still under control.

"Systemic risks still are not prevalent among most of the banks," said Lian Ping, chief economist at the Bank of Communications, adding that the mortgages and property loans account for 22 to 23 percent of total loans in China.

Ding Jianping, a professor at Shanghai University of Finance and Economics said the country's property loans are much safer than those in many Western countries because buyers are required to put down at least 30 percent.

"Bad loans are only likely if there is a sudden drop in housing prices," said Ding.

"But the government will not let that happen, since the real estate industry is still one of the pillars of economic growh."

Regional regulators are also experimenting with ways to supervise the banks.

The Shanghai Branch of the CBRC has required banks to run stress tests on real estate loans quarterly to help prevent a credit boom from leading to more bad loans. The results of the tests revealed that "even if the housing prices drop 30 percent, it would still have little impacts on the banks' operations," according to the Shanghai Securities News.

Source: Global Times


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