CHINA S banking regulator urged banks to restrict new loans to local government financing vehicles and again warned of the credit risks of property loans, Shanghai Securities News reported yesterday, citing a document recently issued to lenders.
Banks shouldn t renew or roll over existing loans to local government financing vehicles ahead of their expiration and should carefully lend to these vehicles, the report quoted the document as saying.
The only exception was that banks could increase lending for affordable housing construction projects when appropriate, the report said.
The China Banking Regulatory Commission had also increased monitoring of property loan credit risks as part of efforts to prevent bank loans from being funneled into speculative real estate investment, the report said, reiterating the use of loans for land purchases was prohibited.
In addition, the banking regulator was requiring banks to report their deposit and loan balances on a monthly basis to strengthen liquidity management and ensure a stable supply of financing.
Analysts have said local government financing vehicles and the property market pose the biggest risk to Chinese banks. Although local governments in China are prohibited from borrowing from banks directly, they often circumvent the law by setting up companies to obtain bank loans.
Supported by land holdings and the promises of officials, these firms found plenty of obliging banks as they stepped up lending over the past two years. Outstanding loans to local-government financing platforms totaled 7.66 trillion yuan (US$1.1 trillion) by the end of June, China Securities Journal reported in July, adding about 20 percent of these loans were at a higher risk of default because of lack of sufficient guarantees or cash flows. (SD-Agencies)
