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June 30, 2010

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Moody's sees rising bad loans at banks

BAD loans at Chinese banks are set to rise with real estate and local government financial vehicles seen as contributers of worsening assets, Moody's said yesterday.

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

Real estate loans have the highest delinquency ratio among loans with collateral. A housing bubble was in the making before China issued its tightening policy on the property 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 stance," Zhang said.

In mid-April, the State Council, China's Cabinet, announced moves to cool the heated housing market, including raising the minimum down-payment to second-home mortgages from 40 percent to 50 percent and imposing an extra 10 percent interest rate on second home loans. For those who buy three or more homes, higher down-payments and interest rates should be levied.

Banks in Shanghai may face a combined loss of 5 billion yuan (US$732 million), or 8 percent of their pre-tax profits in 2009, if property prices drop 30 percent, the Shanghai bureau of the China Banking Regulatory Commission said earlier, quoting lenders' pressure tests.

The financing arms of local governments are another risk area, partly due to their opaque financial position.

The CSRC has asked banks to monitor the risks on loans to these financing arms.

Banks in China lent a record 9.6 trillion yuan in 2009.




 

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