Chinese regulator probes home loan portfolio of source banks

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SHANGHAI/BEIJING — China’s banking regulator is reviewing the property sector loan portfolios of some local and foreign lenders to assess systemic risks, sources familiar with the matter said, as the property sector’s debt crisis escalates. worsen.

As part of its assessment, the China Banking and Insurance Regulatory Commission (CBIRC) is looking at the exposure of banks’ loan portfolio to developers to find out whether such credit decisions have been made according to the rules, the ICRC said. one of the sources.

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The aim of the latest regulatory inquiry is to gauge risks to the financial system from the current turmoil in the real estate sector in the world’s second-largest economy, two of the sources said.

The CBIRC did not respond to requests for comment from Reuters.

All sources declined to be named due to the sensitivity of the issue.

The move comes as policymakers try to stabilize the housing sector which accounts for a quarter of the economy after a series of defaults among developers on their bond repayments and a slump in home sales.

The survey underscores challenges for Beijing in its efforts to encourage banks to provide new loans to struggling property developers, while managing lending risk.

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Home loans accounted for 25.7% of China’s banking sector’s total credit at the end of June, according to data from China’s central bank. Total outstanding banking sector loans stood at 206 trillion yuan ($30.3 trillion) at the end of the first half.

The debt crisis in China’s property sector has deepened in recent weeks after scores of homebuyers threatened to stop paying mortgages for stalled property projects, deepening a crisis that has already hit. the economy and could lead to social instability.

The CBIRC is also asking certain developers for details of their cash positions and the source of money for debt repayment, a third banking source said. The probe is different from the routine self-declaration that the regulator requires from banks.

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Beijing’s launch of strict leverage rules for developers in recent years has caused cash flow problems for many, leaving some scrambling month-to-month to pay upcoming debt and sometimes failing.

“The regulator wants to know how to adjust policy and assess risk,” said a banker at a foreign lender, who was asked for property-related loan documents over the past two weeks.

The investigation is very detailed and loan officers are approached repeatedly, sometimes over several weeks, for additional documentation on loans to specific promoters, two of the sources said.

Rising defaults on mortgages increase risks for banks and developers.

“The risk of new NPLs (non-performing loans) will remain a threat to banks’ asset quality,” ratings agency Moody’s said in a June note.

Credit problems in the real estate sector are likely to seep into secondary industries such as asset management companies, private construction firms and small steelmakers, Fitch Ratings said in an August note.

($1 = 6.7890 Chinese yuan) (Editing by Sumeet Chatterjee and Jacqueline Wong)


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