Home News EXCLUSIVE China regulator launches new probe into banks’ property loan exposure – sources

EXCLUSIVE China regulator launches new probe into banks’ property loan exposure – sources

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A man works at an apartment construction site in Beijing, China, 15 July 2022. REUTERS/Thomas Peter

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SHANGHAI/BEIJING (Reuters) – As the crisis in the real estate sector worsens and weighs heavily on China’s banking regulators, it will slash real estate loans from some local and foreign lenders to assess systemic risk. The company is scrutinizing its portfolio, said a source familiar with the matter. Economy.

As part of the assessment, the China Banking and Insurance Regulatory Commission (CBIRC) is reviewing banks’ exposures to loan book developers to see whether their credit decisions were made in accordance with the rules, the sources said. said one of the

The aim is to gauge the risks to the financial system from the ongoing real estate sector turmoil in the world’s second largest economy, two of the sources said. It was not immediately clear what action the regulator would take after the investigation.

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The survey is different from the regular self-reporting required of banks by regulators, the sources said.

The Chinese economy narrowly avoided contraction in the second quarter as extended lockdowns and a downturn in the property sector due to COVID-19 severely undermined consumer and business confidence. Data for July were much weaker than expected and showed signs of further deterioration in the housing and construction markets. read more

CBIRC did not respond to Reuters’ request for comment.

Not all sources were identified due to the sensitivity of the issue.

The latest survey comes as policymakers try to stabilize the real estate sector, which accounts for a quarter of the economy, after developers defaulted on their bonds and home sales faltered. .

The survey highlights Beijing’s challenges in its efforts to encourage banks to make new loans to troubled developers while managing lending risks.

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

Chinese banks have the greatest exposure to local developers and homebuyers, while foreign lenders, including HSBC Holdings (HSBA.L) and standard chartered (Stanel) Lend to a real estate company.

Reuters was unable to determine whether HSBC and Stanchart, China’s largest foreign banks, were included in the latest investigation. HSBC and Stanchart declined to comment.

The debt crisis in China’s property sector has worsened in recent weeks as more homebuyers threatened to stop paying mortgages on stalled property projects, potentially leading to social instability. It has exacerbated a crisis. read more

CBIRC is also asking some developers for details of their cash positions and funding sources for debt repayment, a third bank source said.

In the last few years, with Beijing launching tougher leverage regulations for developers, many have had cash flow problems, scrambling month after month to pay their next debt, sometimes failing. There is also

“Regulators want to know how to adjust policies and assess risks,” said a banker with a foreign lender who has been asked for loan documents related to the real estate sector over the past few weeks. .

The investigation has been very detailed, with loan officers being approached multiple times, sometimes for weeks, for additional documentation on loans to specific developers, two of the sources said. says.

A potential increase in mortgage defaults puts banks and developers at greater risk.

Ratings agency Moody’s said in a June memo that “the risk of new non-performing loans (NPLs) will continue to pose a threat to banks’ asset quality.”

CBIRC data showed the non-performing loan ratio for commercial banks stood at 1.67% at the end of June, down from 1.73% earlier this year, although many analysts believe the real figure is much higher.

China’s new bank lending fell more than expected in July, with a broad Credit growth slowed. read more

Fitch Ratings said in an August report that credit problems in the real estate sector risk spilling over to secondary industries such as asset managers, privately owned construction companies and small steel producers.

($1 = 6.7890 Chinese Yuan)

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Edited by Sumeet Chatterjee, Jacqueline Wong, Kim Coghill

Our criteria: Thomson Reuters Trust Principles.

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