Wednesday, April 20, 2011

China Order More Stress Tests

China Orders Banks to Do More Stress Tests on Property Loans

Lenders should strengthen management of property-related advances and credit to local government financing vehicles, China Banking Regulatory Commission Chairman Liu Mingkang said yesterday, according to a statement on the agency’s website.

China has been getting a diminishing return on increasing investment in fixed assets. That would certainly hint at those loans to local government defaulting.

“Banks should prevent property loan risks and readily apply the various policies,” Liu said in a speech yesterday during the regulator’s internal meeting about the country’s economic and financial situation. “The sustainable development of China’s macro-economy faces uncertainties.”

And, looks like they may be aware of that. Of course, they could just bail the whole shebang out yet again. Fitch is aware:

There’s a “high likelihood of a significant deterioration” in banks’ asset quality after a record credit boom in the last two years, Fitch Ratings said April 12. More than half of Chinese banks’ 17.5 trillion yuan ($2.7 trillion) of new loans since 2008 were to either the property sector or local governments, both of which have “questionable repayment capacity,” according to the ratings company.

And a WT...?
He also repeated demands that banks ensure the growth rate of loans to small companies exceeds the average expansion of overall lending, while credit for the agriculture industry should increase from last year’s level.

Cutting agriculture off from credit when inputs are rising is going to do what to next year's harvest?

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