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China bank chief gets tough on property, land loans

BOAO, CHINA: China's banks must report on the quality of their loan books by the end of June and take fresh steps to rein in risky lending to land developers, the chief banking regulator said.

Liu Mingkang, head of the China Banking Regulatory Commission, said he would send inspectors into the banks next quarter to root out loans that had been made illegally.

Speaking at the Boao Forum on southern China's Hainan island on Sunday, Liu warned banks to be selective in supporting real estate developers and said his agency had instructed banks to lower loan-to-value ratios when lending to companies acquiring land.

Land prices more than doubled last year and some plots in Beijing have fetched record prices this year, snapped up by state-owned enterprises (SOEs) whose core business has nothing to do with real estate development.

The government has since ordered 78 SOEs to divest such non-core businesses, and Liu said the principle that the highest bidder should win a land auction was not appropriate in China.

He also said banks in Beijing were now requiring buyers of second homes applying for a mortgage to make a down payment of more than 60% of the value of the property to discourage speculative buying that has sent prices in parts of the capital soaring.

The minimum down payment was previously 40%. First-time owner-occupiers taking out a mortgage need a down payment of only 20%.

Liu said underlying demand for housing in China remained strong but banks needed to strengthen risk controls. He expressed confidence that they would succeed.

Liu's remarks and actions are the latest stage in a campaign by the authorities to ensure that a record surge in bank lending last year and fast-rising property prices do not sow a new crop of bad loans.

To that end, the CBRC has been requiring banks to raise fresh funds to bolster capital adequacy ratios depleted by the extension of 9.6 trillion yuan in credit last year. The CBRC has also ordered banks to increase their loan loss provisions.

Housing is at the core of the CBRC's concerns.

The sector is a central pillar of the Chinese economy and Beijing faces the balancing act of continuing to promote widespread home ownership while deterring speculative investment that has driven prices in some cities beyond the reach of ordinary Chinese, prompting widespread grumbling - Reuters
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