China property plunge would barely dent CCB

BEIJING: If housing prices in China plummeted by 60%, there would be no noticeable increase in the default rate on loans issued by China Construction Bank (CCB), a newspaper report reported on Monday, Aug 23.

CCB, China's biggest lender to home buyers, would only suffer a clear rise in defaults if property prices tumbled by 63%, the 21st Century Business Herald reported, citing an unnamed source who is close to the bank.

The China Banking Regulatory Commission told banks this month to conduct stress tests to examine how their books would hold up should the property market crash. The worst-case scenario envisioned a 60% plunge in prices, which most analysts see as an extremely remote possibility.

"Because CCB has taken preventative steps, its situation is very optimistic," the source was quoted by the Chinese-language newspaper as saying.

In reporting its results for the second quarter on Sunday, CCB, the world's second largest bank by market value, said that it had already reined in lending to the real estate sector.

Such credit grew only 5.6% during the first half from the end of last year, it said. As a proportion of its outstanding loans, lending to the property sector fell to 7.08% from 7.44%.

If confirmed, CCB's sanguine view about the property stress tests would be consistent with the conclusions of other banks that have been reported so far.

Bank of Communications said last week that the ratio of bad loans in its mortgage business would rise by only 1.2 percentage points in the event of a 50% fall in housing prices.

Under the same circumstances, non-performing mortgage loans would climb by up to two percentage points at China Merchants Bank, local media reported.

The Chinese government launched a crackdown on property speculation earlier this year, raising mortgage downpayments and curbing lending to developers, because it was fearful that soaring prices could morph into a bubble.

Price rises have slowed in recent months and industry insiders expect outright declines soon, though not on the magnitude of a 60% collapse.

Wang Shi, chairman of Vanke, the largest listed Chinese developer, was quoted by local media on Monday as saying that housing prices in top-tier cities would fall by about 10%-15%. — Reuters
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