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New tests order on realty loans

时间:2011-04-27 14:48:47  

China has ordered banks to conduct another round of stress tests on real estate loans to gauge the impact of a decline in housing prices.

 
-  THE STANDARD  -

This comes as the government steps up tightening measures to prevent an asset bubble.

"Lenders should strengthen management of property-related advances and credit to local government financing vehicles," China Banking Regulatory Commission chairman Liu Mingkang said on the agency's website.

The order reflects concern that overheating in the real estate market may lead to a surge in bad debts for banks if prices drop and property companies run out of cash.

The central government last month ordered local authorities to cap new- home prices after limits last year failed to stem what Premier Wen Jiabao called "exorbitant" gains in some areas.

 
"Banks should prevent property loan risks and readily apply the various policies," Liu told regulators yesterday at an internal meeting about the national economic and financial situation.

Moody's Investors Service lowered its outlook on the mainland property industry to negative last Thursday on concerns home sales may decline as much as 30 percent as local governments enforce limits.

Fitch Ratings also reduced its outlook on the nation's long-term local currency rating to negative, setting the stage for the first cut to the debt rating in 12 years.

"There's a high likelihood of a significant deterioration in banks' asset quality after a record credit boom in the last two years," Fitch warned last week.

Of mainland banks' 17.5 trillion yuan (HK$20.85 trillion) of new loans since 2008, more than half are to either the property sector or local governments, both of which have questionable repayment capacity, according to Fitch.

The CBRC told banks to amend their loan contracts with local governments by revising maturity periods and the method of repayment to ease risks, according to a statement on its website yesterday. The statement did not elaborate on the changes foreseen.

"Banks must support the government's plans to build affordable homes and work out methods to ensure loans are repaid," Liu said.

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