Chinese banks are being told to conduct stress tests to assess their exposure to property loans amid a weakening real estate market, Economic Information Daily reported Tuesday, citing unnamed sources.
Regulators want the evaluation done on lenders in Inner Mongolia and Wenzhou in Zhejiang province, among other areas that experienced home price fluctuations after a speculative buying spree, many on borrowed cash, until market curbs caused prices to plummet.
In Inner Mongolia, banks have been asked to report overdue property loans and related non-performing loans, and come up with plans to dispose of bad debt. They have until the end of August to comply.
Default risks are emerging in property development loans and individual mortgage loans in those regions, the report said.
Bad mortgage loans were 600 million yuan (US$97.4 million) in Erdos, a city in Inner Mongolia, an executive of the local branch of a state-owned bank was quoted as saying.
Wenzhou’s property market peaked in 2009 and 2010 but began to slump in September 2011 after the central government stepped in to cool soaring home prices by imposing home purchase restrictions, including a higher down payment.
Many Wenzhou homeowners were unable to sell their flats when sales and prices dropped quickly.
Worse, some businessmen bought property with borrowed cash from underground lenders. The property crash forced some of them to flee or commit suicide after going bankrupt.
Outstanding property-related loans were 16.2 trillion yuan at the end of June, accounting for 20.8 percent of all loans, while mortgage loans took up about 67 percent of property loans, according to the China Banking Regulatory Commission (CBRC).
CBRC vice chairman Wang Zhaoxing said banks will undergo stress tests in third and fourth-tier cities where property vacancy rates are high.
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