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Loan warning for China's banks

BAD loans are set to rise in Chinese banks, with property and local government financial vehicles as sources of worsening assets, Moody's said today.

"A system-wide distress like the US's subprime crisis is unlikely in China but volatility exist in the housing and local government financial vehicles," said Yvonne Zhang, senior analyst of Moody's Investors Services, today in Shanghai.

The property sector is the main contributor of pledged assets, which has the highest delinquency ratio among loans with collateral.

A housing bubble is in the making before China tightens policy on the housing market, she said.

"Indicators of higher leverage, panic buying on skyrocketing prices, low returns and high vacancy ratios are pointing to the growing of a bubble before the new policy," Zhang said.

In mid-April, the State Council announced moves to cool off the red-hot home market, including stricter rules on individual mortgages.

It increased the minimum down-payment second-home mortgages to 50 percent from 40 percent. An extra 10 percent interest rate must be applied for second mortgages.

For those who buy three or more homes, even higher requirements on both down-payments and interest rates are levied.

The new policy immediately cut home sales, with prices dipping in some areas. More correction of the home prices are expected though not yet realized.

Banks in Shanghai may face combined losses of 5 billion yuan (US$732 million), or 8 percent of their pre-tax profits in 2009, if property prices drop 30 percent with limited and controllable impact on their sour loans, the Shanghai bureau of the China Banking Regulatory Commission said earlier, quoting lenders' pressure test.





 

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