THE banking regulator told banks to ask for faster repayment of local-government infrastructure loans on concern existing debt terms leave them with too much risk, a person with knowledge of the matter said.
About 50 percent of loans to the financing vehicles of local governments are for five years or more, with terms for most credits requiring repayment of the principal on maturity, said the person, who requested anonymity. The banking regulator asked lenders to revise terms so that payments start when projects are completed and are made in at least two installments annually after that, the person said.
The government is trying to limit risks brought about by last year s surge in loans to local-government finance vehicles for roads, bridges and railroads. Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan (US$1.1 trillion) of such credits they ve extended, a person with knowledge of data collected by the industry regulator said in July.
It s time for the Central Government and various departments to wield their power together before risks from these financing vehicles get out of control, said Yvonne Zhang, a Beijing-based analyst at Moody s Investors Service. Any significant economic slowdown could be disastrous to these vehicles and banks, and ultimately to the government itself.
Local governments have provided 3.6 trillion yuan of fiscal guarantees for their financing vehicles, said the person, who declined to be identified. That s more than the combined revenue of all local governments in 2009.
The China Banking Regulatory Commission is steadily pushing forward to secure repayments of loans to local government financing vehicles under State Council guidelines, the regulator said in a text message to Bloomberg News.
Almost 50 percent of local-government finance vehicle loans by value were backed by land subject to price fluctuations as of Aug. 31, according to the China Banking Regulatory Commission s latest risk assessment, the person said. The 21st Century Business Herald reported the value of guarantees earlier yesterday, citing an unidentified person. (SD-Agencies)
