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Banking regulator denies huge housing loan default

By Xu Shenglan (chinadaily.com.cn)
Updated: 2008-07-29 15:28

The Shenzhen Banking Regulatory Bureau denied market rumors that non-performing housing loans in the city could be more than 100 billion yuan ($14.7 billion), saying property loan risks were still under control, Xinhua reported on Friday.

Liu Yuan, head of the bureau, said that by the end of June, the outstanding value of property loans in local Chinese banks reached 219.87 billion yuan. Non-performing loans (NPL) totaled 1.39 billion yuan, 73 million yuan less than the figure at the beginning of this year. The NPL ratio went down 0.02 percentage points to 0.63 percent. Loans overdue for more than 90 days were more than 1.7 billion yuan, up 211 million yuan since the beginning of the year.

According to the banking regulator, property loan business in Shenzhen is operating normally so far, and default risks can be effectively controlled. In addition, the sound risk management mechanism of local commercial banks also helps to rule out systematic risks.

Due to the recent slump of housing prices in Shenzhen, the value of some properties has shrunk below owners' unpaid housing loans, making these houses negative assets. However, Li doesn't think all home buyers will stop paying their mortgages and leave the houses at the banks' disposal because of substantial living needs and credit record concerns.

However, the fluctuation in property prices could have a direct impact on banks' fund security, according to Liu. To prevent the risks, the Shenzhen Banking Regulatory Bureau has adopted special inspections into banks' default cases while closely following the trend of local property markets. It has also urged commercial banks to implement the nation's macro-control policies, and abide by all risk-control regulations in their credit business.