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Regulator Orders Shanghai Banks to Obey Home Mortgage Rules

The Shanghai branch of China’s banking regulator ordered lenders to obey rules on mortgages for second homes after new loans reached a record 1.89 trillion yuan ($276 billion) last month.

Down payments for second homes may be no less than 40 percent of the property’s price, and lenders should set interest rates based on risk, the China Banking Regulatory Commission’s Shanghai branch said in an e-mailed statement today.

Chinese banks, mostly government controlled, extended a record 4.58 trillion yuan of new loans in the first quarter, more than triple the amount offered in the same period a year earlier. Lending this year may top the government target by as much as 3 trillion yuan, according to JPMorgan Chase & Co. The surge has raised concerns that non-performing loans will pile up.

Loan defaults are the biggest threat to Chinese banks, which face “a choppy 2009” as the economy expands at the weakest pace in almost a decade in the first quarter, Fitch Ratings has said. The average bad-loan ratio at domestic banks fell to 2.04 percent at the end of March from 2.42 percent at the beginning of the year, according to the regulator.

The regulator also required banks to tighten scrutiny of mortgages and monitor the use of loans, according to today’s statement.

China’s home prices fell by a record 1.3 percent in March from a year earlier in 70 major cities, the government said this month. Values in Shanghai fell 2 percent on the same basis. Compared with February, prices in the city rose 0.4 percent, figures from the National Bureau of Statistics show.

To contact the reporter on this story: John Liu in Shanghai at jliu42@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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