New stress tests necessary
Source: Bloomberg News |
April 20, 2011, Wednesday
|
Print Edition
Print Edition
CHINA told banks to conduct a new round of stress tests on their real-estate loans to gauge the impact of a decline in housing prices.
Banks should strengthen the management of property lending and loans to local government financing vehicles, China Banking Regulatory Commission Chairman Liu Mingkang said yesterday, according to a statement on the regulator's website.
The order for more stress tests reflects concern that curbs on real-estate speculation and lending to developers may lead to a surge in banks' bad debts if prices drop and property companies run out of cash. The government in March ordered local authorities to cap new-home prices after curbs last year failed to stem what Premier Wen Jiabao described as "exorbitant" price increases in some areas.
"Banks should prevent property loan risks and readily apply the various policies implemented by the central government and the State Council regarding the property market," Liu said in a speech to an internal meeting about the country's economic and financial situation.
"The domestic and external environments are extremely complicated," Liu said at the meeting. "The sustainable development of China's macro-economy faces uncertainties."
Moody's Investors Service lowered its outlook on China's property industry to negative from stable last week on concern residential sales could decline by as much as 30 percent as local governments enforce housing curbs.
Fitch Ratings said last week there was a "high likelihood of a significant deterioration" in banks' asset quality after a record jump in lending in the last two years.
The agency cut its outlook on China's AA- long-term local-currency rating to negative from stable, the first time in 12 years the nation's debt rating faces a cut.
Liu told lenders in July last year to conduct stress tests to gauge the impact of a drop of as much as 60 percent in residential property prices in some areas of the country, a person with knowledge of the matter said in August.
The growth in the cost of new homes in Beijing and Shanghai slowed last month after the government intensified curbs.
Banks should strengthen the management of property lending and loans to local government financing vehicles, China Banking Regulatory Commission Chairman Liu Mingkang said yesterday, according to a statement on the regulator's website.
The order for more stress tests reflects concern that curbs on real-estate speculation and lending to developers may lead to a surge in banks' bad debts if prices drop and property companies run out of cash. The government in March ordered local authorities to cap new-home prices after curbs last year failed to stem what Premier Wen Jiabao described as "exorbitant" price increases in some areas.
"Banks should prevent property loan risks and readily apply the various policies implemented by the central government and the State Council regarding the property market," Liu said in a speech to an internal meeting about the country's economic and financial situation.
"The domestic and external environments are extremely complicated," Liu said at the meeting. "The sustainable development of China's macro-economy faces uncertainties."
Moody's Investors Service lowered its outlook on China's property industry to negative from stable last week on concern residential sales could decline by as much as 30 percent as local governments enforce housing curbs.
Fitch Ratings said last week there was a "high likelihood of a significant deterioration" in banks' asset quality after a record jump in lending in the last two years.
The agency cut its outlook on China's AA- long-term local-currency rating to negative from stable, the first time in 12 years the nation's debt rating faces a cut.
Liu told lenders in July last year to conduct stress tests to gauge the impact of a drop of as much as 60 percent in residential property prices in some areas of the country, a person with knowledge of the matter said in August.
The growth in the cost of new homes in Beijing and Shanghai slowed last month after the government intensified curbs.
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