China is testing the resilience of banks to real estate crash

The Chinese banking regulator ordered the country's credit institutions to conduct stress tests to assess their resistance to a halving of house prices housing in larger cities, we learn from regulatory and banking sources .

The Banking Regulatory Commission has also asked banks to stop lending mortgages to people buying a third home in Beijing, Shanghai, Shenzhen and Hangzhou, they added the sources.

This new evidence of the willingness of Beijing to combat land speculation comes as prices have soared in major Chinese cities.The government fears that the soaring property prices is self-sustaining households prevents access to the property.

"This is a strong signal that the government is trying to give, by showing that it is quite determined to keep house prices under control, even though it is very unlikely that he decided to restrictive measures short term, "said David Ng, real estate analyst at RBS in Hong Kong.

"There will certainly be no easing measures for the moment," he added.

A previous test had shown that resistance of Chinese banks could pass through a 30% drop in property prices without incurring large increases in the ratio of bad loans.

STRICT CONTROLS

Credit institutions must now ask their clients a deposit of 60% of the second second home they wish to purchase in four cities, and will not offer them the rates and a half times higher than the rate of the central bank.

These new requirements state ministerial instructions in April, requiring banks to "increase substantially" the required installment and mortgage rates for those buyers.

Banks may also decide to stop lending to these purchasers in cities where prices are too high or growing too fast, or in case of shortage of housing, said the Business Council of State of the People's Republic China.

Sources close to the Industrial and Commercial Bank of China in Shanghai, said the bank had already stopped this week to offer loans to buyers of a third house in this city.

Almost all banks have adopted this same behavior in Beijing, according to sources interviewed.

Xia Bin, an expert with the Chinese central bank, told China Daily that the brakes placed on the property market, following the record growth in loans last year, had produced the expected results.

The property prices in 70 major Chinese cities fell 0.1% in June compared to May, is the first monthly decline since February 2009.Sales volumes have also declined significantly.

According to Xia Bin, an increase in taxation of capital gains may be an effective measure to combat short-term speculation and, more generally, it is too early for the government relaxes its credit policy.

"The macroeconomic controls must be implemented strictly in the months to come," he added.

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