Chinese regulator launches banking investigation into real estate risks

Other attempts to stabilize the Chinese real estate market are underway, the banking regulator has reportedly launched a detailed investigation into the risks related to real estate in the balance sheets.

The China Banking and Insurance Regulatory Commission (CBIRC) has launched a survey of selected banks’ loan books to gauge ownership risks to the broader financial system and confirm whether credit decisions for developers complied with the rules, according to a Reuters report citing unnamed sources.

The investigation differs from the routine self-reporting requirement and is described as very detailed, with loan officers being repeatedly approached for documentation on loans to specific developers, sometimes over a period of weeks. In addition, the regulator is also asking certain promoters for details of their cash positions and the source of funds for debt repayment.

According to the report, the investigation is not limited to local banks, with some foreign lenders also subject to requests for documents, but it could not be confirmed which ones. It is also unclear what action the CBIRC will take after the investigation.

Real estate crisis

China’s property market is in serious turmoil after tougher debt rules were followed in recent years by a wave of developer defaults and mortgage boycotts on unfinished housing projects.

In the worst case, S&P Global Ratings estimates that 6.4% of mortgages are at risk, while Deutsche Bank has an even more pessimistic forecast with at least 7% of home loans estimated at risk.

According to data from China’s central bank, home loans accounted for 25.7% of the country’s total banking sector, which has outstanding loans totaling 206 trillion yuan ($30.3 trillion), at the end of the first half of the year. .