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August 19, 2022

China looking at banks’ real estate loan portfolios as crisis deepens

The property loan portfolios of some local and foreign banks in China are under the regulator’s lens, Reuters reported citing unnamed sources. 

The latest probe launched by the China Banking and Insurance Regulatory Commission (CBIRC) is aimed at assessing that banks’ credit decisions concerning property developers were in line with the laws. 

The regulator is evaluating the risks that the economy faces from the ongoing crisis in the property sector, the sources said. 

According to the sources, the latest scrutiny of the banking sector is different from routine self-reporting. 

The development comes as the Chinese authorities try to stabilise the property market. 

As of June 2022, property loans accounted for 25.7% of banking sector loans in China and the banking industry’s total outstanding loans stood at CYN206 trillion. 

“The regulator wants to know how to tailor policy and assess risk,” a banker at a foreign bank, who has been approached by the regulator for lending documents related to the property sector.

Sources told the news agency that the regulator is being very thorough and in some cases it is approaching loan officers multiple times for documents on loans disbursed to developers

In the recent week, the property sector’s debt crisis has worsened after home buyers across the country threatened to boycott mortgage payments for stalled property projects.

To stem the issue, which could impact the stability of the financial system, the CBIRC urged the banks to provide lending support to property developers to help them complete housing projects. 

According to a Bloomberg report, in the worst-case scenario, banks in China stand to lose mortgages worth around $350bn. 

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