Banking

Chinese banks to test quarterly on property loans

(Agencies)
Updated: 2010-04-21 10:41

China's banking regulator told larger banks to conduct quarterly stress tests on property loans and ensure the risks attached to such lending is strictly controlled after the government tightened credit rules to crack down on real-estate speculation.

Financial institutions must implement the central government's property controls and use mortgage loan policies to "strictly" limit housing speculation, Liu Mingkang, head of the China Banking Regulatory Commission (CBRC), said in a statement posted on the agency's website yesterday.

China's housing ministry toughened regulations on sales of uncompleted apartments by developers yesterday, adding to curbs on loans for third-home purchases, increased down-payment requirements and higher mortgage rates announced in the past week. China's cabinet has said stricter measures to control speculation are needed after property prices in 70 cities jumped a record 11.7 percent in March.

Banks must scrutinize lending to so-called local-financing vehicles on a "case by case" basis and return to each "loan package" to reassess the risks, Liu said. They should set aside sufficient provisions for loans by the end of the third quarter, he said.

China's economy faces "serious" challenges this year even as the economic recovery gains traction, the CBRC head said in the statement. Lenders must "effectively" control their full- year lending growth and better pace the flow of credit, Liu said.

The central bank is aiming to reduce new lending by 22 percent this year, after a record $1.4 trillion of credit was handed out last year.