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February 3, 2010

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Property loans under scrutiny

THE Shanghai banking regulator yesterday asked banks to closely monitor increasing risks from property loans this year as sour loans for commercial real estate projects have been rising.

"The outstanding value of bad loans on commercial property in Shanghai rose in 2009," Yan Qingmin, head of the Shanghai Bureau of the China Banking Regulatory Commission, said at a meeting with heads of domestic banks in Shanghai.

"Banks should pay close attention to that sign and take solid measures to curb property loan risks," he said.

Property lending accounted for 27 percent of outstanding loans in Shanghai. The contribution is even higher when loans to the construction sector or loans with real estate used as collateral are factored in, Yan said.

The outstanding value of total loans at all banks in Shanghai jumped 22.9 percent to 2.97 trillion yuan (US$435 million) at the end of last year, according to the People's Bank of China data.

Property transactions and prices have risen rapidly in Shanghai since March, and auction prices of land parcels in the city surged against the background.

In Shanghai, prices of existing properties rose to 14,700 yuan per square meter on average in December, an annual surge of 41 percent.

Prices of new homes rose 65 percent from a year earlier to an average 20,187 yuan per square meter in December.

Despite rising bad loans in commercial property projects, the total sour loans in the city fell overall.

The bad loans at banks dropped 907 million yuan to 34.66 billion yuan at the end of 2009. The non-performing loan ratio also edged down 0.29 percentage points to nearly 1.2 percent.

The CBRC asked big banks to set aside provision of more than 150 percent against bad loans. The average provision at commercial banks in Shanghai rose to 151.4 percent at the end of 2009, up 26.3 percentage points from a year earlier.

The local banking regulator also asked domestic banks to promote the top-end lucrative private banking business, an area now dominated by overseas banks.




 

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