2010-07-27 17:29

The amount of shaky loans in Shanghai continues to grow every month despite new policies released in April designed to curb them, making it more likely that the hidden real estate credit risk they represent will be revealed, said Yan Qingmin, director of the Shanghai banking regulatory bureau, the China Business News reported Tuesday.

In banking jargon, these are called "special-mention property loans." They are loans to borrowers who are having trouble repaying them, which can threaten the financial health of the loaner.

Yan said the value of newly added special-mentioned property loans in Shanghai were 172 million yuan ($25.39 million), 632 million yuan and 1.4 billion yuan respectively in April, May and June, and that developers' ability to repay them has begun to decrease.

Moreover, since 75 percent of the loans were made after 2009 when land prices were high, the developers have higher payments and bigger risks that the collateral will depreciate.

An unnamed deputy-head of the Shanghai branch of a joint-stock bank said the reason for increased property loans might be low sales in the market. Developers did not have enough funds to pay back the loans, so banks had to extend the terms of loans or make new loans for repaying the old.

Yan urged the banks to adhere to the real estate control policies and put real estate credit risk strictly under control, the report said.

He said the banks should adjust the line of credit differently based on the real situation in different districts, avoid excessive credit and keep mortgage rates down. The banks should also supervise closely the flow of loans, he added.

Yan especially emphasized that the banks should enhance the standard of collateral, control the proportion of loans and other measures to reduce the risks.