Beijing gives banks fresh property stress test

BEIJING: China's banking regulator has told banks in Beijing to test for the impact of a plunge in property values below what is owed on mortgages, a local newspaper reported on Wednesday, Aug 18.

The order to examine any potential damage from negative equity in the real estate market is the latest effort to probe for banks' vulnerability to a crash in housing prices.

The Beijing branch of the China Banking Regulatory Commission told lenders in the capital city to particularly monitor for risks in mortgages that have funded purchases of second homes, which are typically seen in China as speculative investments.

The report by the Chinese-language 21st Century Business Herald cited an unnamed executive at a state-owned bank in Beijing.

China's real estate market has slowed in recent months under the weight of a package of government policies to rein in soaring prices, though the latest data has showed that prices have yet to decline.

Regulators have called for banks to conduct a series of property stress tests, envisioning a 60% fall in housing prices in the worst-case scenario, but have also stressed that these are a normal part of managing risk and do not represent their forecasts for the sector. — Reuters
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