Date
20 September 2017
China's central bank has said earlier this year that about a fifth of the loans to local government financing arms could be termed as risky. Photo: Bloomberg
China's central bank has said earlier this year that about a fifth of the loans to local government financing arms could be termed as risky. Photo: Bloomberg

China banks get a fresh warning on LGFV loan default risks

Chinese regulators have warned banks of growing default risks on their loan exposure to local government-backed financing vehicles (LGFVs) amid a weakening property market, Shanghai Securities News reported Wednesday, citing sources.

Some local governments are facing a big challenge in meeting their loan repayment obligations as their fiscal revenues have fallen sharply due to slower growth in land and property prices, the report said. The problem is said to be particularly acute in the central and western regions of the country.

Many local governments rely heavily on land sales revenues to fund infrastructure construction.

Regulators have told banks to strictly control their loans to local government-backed financing vehicles, and advised the lenders not to enhance new quotas for such loans, the report said.

Banks are required to work together with local governments to map out repayment plans and finalize the payment schedule. Meanwhile, they must take timely action on any potential defaults and report quickly to regulators.

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