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Bank of China cautions on loans to developers

By Li Qiaoyi (Global Times)

08:01, June 28, 2012

Bank of China, one of the country's largest lenders, said it needs to be wary of risks in lending to developers amid China's continuing property curbs, a statement which may dampen market expectations for credit easing.

"We are taking measures to control risks in lending to real estate companies, whose asset quality is worsening, as well as to other high risk industries," Li Lihui, vice chairman and president of Bank of China, the country's fourth largest lender by assets, told a news briefing in Taipei yesterday while unveiling the bank's first Taiwan branch, Reuters reported.

Li did not give details on the measures the bank may take to avoid risks.

Li's remarks may rattle the nerves of some of country's real estate developers, who were hoping for further easing of monetary policy as the government tries to bolster economic growth in light of continued slowdown in the economy, particularly after the central bank announced a rate cut by 25 basis points in early June, the first time in more than three years.

"The government is unlikely to free up lending to property developers as it may result in a home price recovery, contradicting the government's intention to curb runaway home prices," Zhang Zhiwei, chief China economist with Nomura Securities in Hong Kong, told the Global Times yesterday.

Home prices in 70 major cities across the country saw a moderation in the pace of decline in May, the second month in a row, said the nation's statistical bureau.

There is likely to be one more cut in reserve requirements in July, but additional rate cuts are less likely for the rest of the year, Zhang predicted.

Property developers have been feeling the pinch of monetary tightening, with growth in loans for property development maintaining a downward trend in the first quarter of the year, according to a quarterly report released by the central bank in April.

While concerns over freeing up lending to developers remain, some industry watchers also expressed confidence in the recovery of the nation's property sector.

"Banking liquidity has overall been easing this year compared to last year, and the government has already taken some loosening measures such as the rate cut," said Zhang Dawei, research director at the Beijing office of Centaline Property, a real estate consulting firm.

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