Chinese province inspects banks for illegal lending for real estate - sources

[SHANGHAI] The banking regulator of China's northwestern province of Shaanxi has ordered inspections of local banks to better gauge financial risks from illegal lending to the real estate sector, two banking sources said on Friday.

The Shaanxi office of China Banking Regulatory Commission including (CBRC) is targeting six areas of irregularities, including illegal financing for land purchases and real estate development projects, and loans borrowed to fund mortgage downpayments, the sources said.

The banking regulator also asked banks to "strictly prevent" default risks of property developers and individual mortgages, particularly those issued during the period of rapid housing price rises.

All outstanding real estate loans through end August will be checked, and the period could be extended if deemed necessary, according to the sources.

Reuters could not reach Shaanxi Banking Regulator for this story.

Shaanxi, a province with more than 37 million people, have intensified its crackdown on property speculation since late 2016. New home prices in provincial capital Xian rose 13.4 per cent in August from a year ago, official data showed.

China's new home prices rose in August at the slowest pace in seven months and fell or levelled off in more cities as government cooling measures dampened speculation, though there were no signs of a sharper correction that could damage the economy.

CBRC said in August that risks surrounding China's real estate loans are under control, as the non-performing property loan ratio was only at 0.49 per cent at the end of the first quarter, 1.49 percentage points lower than the overall non-performing loan ratio.

Still, short-term household loans in August doubled from July to 216.5 billion yuan (S$44.2 billion), as some home buyers may be turning to short-term consumer loans due to curbs on mortgages, analysts said.

REUTERS