Domestic banks in China's major cities are tightening
supervision on loans, particularly mortgages, to prevent money from
being diverted to the bullish but possibly overvalued stock
market.
The country's benchmark Shanghai Composite Index has skyrocketed
130 percent since early last year, enticing some market players and
firms to misuse loans for equities trading, and potentially adding
to the increasing number of non-performing loans.
In Hangzhou, capital of east China's Zhejiang Province, a bank
official estimated up to 70 percent of its customers used part of
their mortgages for equity or fund purchases.
The crackdown came after the country's banking regulator
recently exposed the practice, threatening stricter checks later
this month.
The outstanding performance of China's stock market has seen
massive withdrawals from banks recently Shanghai's benchmark
indicator closed at 2,716 points yesterday.
But many banks are facing an increasing rate of non-performing
loans due to inappropriate use of funds.
The Shanghai branch of the Industrial and Commercial Bank of
China (ICBC), the nation's largest lender, said yesterday it had
realized the potential risk and put forward policies requiring
local outlets to strengthen monitoring.
"Before obtaining the loans, borrowers are required to prove how
they will use the money and have their records checked for any
violation," an ICBC official said yesterday.
If any improper use of loans is found, the lender would
terminate the loan immediately and the borrower would have to
return the funds, he added. Other banks in Shanghai said they were
cautious about the issue.
To help companies and banks reduce risk, a high court in
Shanghai threatened to draw up a blacklist of those with bad credit
ratings who had ignored court orders for more than six months.
Those blacklisted would be barred from buying new homes or
obtaining loans.
In Beijing, keeping close track of diverted loans is now policy
at Bank of Communications.
Financial intermediaries in Shenzhen, in south China's Guangdong
Province, carry out checks to combat misuse, particularly for
personal loans.
Han Jianbo, deputy director of the wealth management center at
China Merchants Bank's Hangzhou branch, said: "We will keep a close
watch on how loans are used."
(China Daily February 8, 2007)