More attempts to stabilize the Chinese real estate market are underway with the banking regulator reportedly launching a detailed investigation into property-linked risks on balance sheets.
The China Banking and Insurance Regulatory Commission (CBIRC) has launched an investigation into the loan books of some banks to measure property-related risks to the broader financial system and confirm if credit decisions for developers complied with rules, according to a «Reuters» report citing unnamed sources.
The probe differs from the routine self-reporting requirement and is described as very detailed, with loan officers being approached multiple times for documents on lending to specific developers, sometimes over the span of weeks. In addition, the regulator is also asking some developers for details on their cash positions and the source of funds for debt repayments.
According to the report, the probe is not limited to local banks with some foreign lenders also subject to requests for documents but it couldn’t be confirmed which ones. It is also unclear what actions will be taken by the CBIRC after the investigation.
Property Crisis
China’s property market is undergoing serious turbulence after tighter leverage rules in recent years were followed by a wave of defaults by developers and mortgage boycotts over unfinished housing projects.
In a worst case scenario, S&P Global Ratings estimates that 6.4 percent of mortgages are at risk while Deutsche Bank has an even more pessimistic forecast with at least 7 percent of home loans estimated to be at risk.
According to data from China’s central bank, property loans accounted for 25.7 percent of the country’s total banking sector which has outstanding loans totalling 206 trillion yuan ($30.3 trillion), as of the end of the first half.
