Money

China's bank regulator sees growing real estate risks

(Agencies)
Updated: 2010-06-15 15:30

China's banking regulator said it sees growing credit risks in the nation's real-estate industry and warned of increasing pressure from non-performing loans.

Risks associated with home mortgages are growing and a "chain effect" may reappear in real-estate development loans, the China Banking Regulatory Commission (CBRC) said in its annual report published on its website today.

The regulator has told banks to report on risk exposure by the end of June to help prevent a credit boom from leading to more bad loans. Property-price gains spurred concerns that a record 9.59 trillion yuan ($1.4 trillion) of loans extended last year to combat the effects of the global financial crisis may be causing asset bubbles.

China is "closely monitoring the growth in the volume and the quality of mortgage loans, but we don't think it has reached an alarming level," said Kelvin Lau, a Hong Kong-based economist at Standard Chartered Plc. "There are still many tools the central government can use to tackle the problem if things get out of control."

Credit risks in some industries that have seen a surge in investment may "emerge soon" as restructuring efforts intensify, the regulator said in the report. The rise in investment exacerbated the problem of excess capacity and over-development, it said.

Market Performance

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, has dropped 22 percent this year. Markets in China are closed from June 14 to 16 for a holiday.

"Coming through the global financial crisis, China's banking sector has stepped onto a new level," CBRC Chairman Liu Mingkang said in the report. "We remain cool-headed about the weaknesses to be addressed and fixed."

Related readings:  CBRC: Some banks trying to circumvent capital requirements  China's cabinet warns over bank debt  AgBank eyes $23b IPO  Property prices heading for a slump, say experts

China's "experimental" approach to reining in asset bubbles may help it avoid a US-style housing market crash, Jeremy Grantham, chief investment strategist at Grantham Mayo Van Otterloo & Co, said in Sydney Tuesday.

CBRC's report comes as Agricultural Bank of China Ltd, the country's largest by number of customers, prepares to sell shares in Shanghai and Hong Kong in what could be the world's largest initial public offering. [Full Coverage on AgBank's IPO]

Agricultural Bank of China may raise at least $23 billion from the total offering, people with knowledge of the matter said last week. The IPO will likely surpass the $22 billion sale in 2006 by Industrial & Commercial Bank of China Ltd.

China, the world's fastest-growing major economy, expanded 11.9 percent in the first quarter from a year earlier. Measures to cool the real-estate market have included a ban on loans for third-home purchases and raising mortgage rates and down-payment requirements for second-home purchases. [Full Coverage on Real Estate Curbs]

Property Prices

Property prices in the country rose 12.4 percent in May, the second-fastest pace on record, showing little sign yet that the government crackdown on speculation will work to avert an asset-price bubble. [May Economic Statistics]

Some banks in China have transferred loans off their balance sheets in an effort to circumvent regulatory requirements and capital and loan-loss provisioning, the CBRC said in the report. [Full Story]

Banks still assume the risks related to loan management and recovery even though the loans are not booked on their balance sheets, it said. As a result, rising risks associated with banks' activities in transferring their exposures off the balance sheet need "close supervisory attention."