CBRC Increases Pressure on Lenders as Fears of Housing Bubble Mount

(Beijing) — Banks and trust companies in big cities are facing increased regulatory pressure to tighten lending to the property sector as worries about an asset bubble grow.

The China Banking Regulatory Commission (CBRC) has instructed banks and trust companies in 16 cities, including Shanghai, Shenzhen and several provincial capitals, to examine their real-estate-related business between January and September, sources said.

Firms are required to evaluate whether they have broken regulations or collaborated with other companies to work around government restrictions on lending to property developers and individuals who took out loans for down payments, the sources said.

Banks were told to determine whether their clients had used credit cards or other consumer loans to pay for home mortgages, and to verify whether they had made loans or funneled funds from wealth-management products to help real estate firms buy land.

Trust companies face similar requirements because they are in a position to help non-financial enterprises borrow money when they are not able to get loans directly from banks.

The requirements come after CBRC Chairman Shang Fulin called for "focused attention" on banks and trust companies making inappropriate loans to developers and home buyers. Shang made the comments during an internal work conference on Oct. 21, according to attendees.

Shang said the government had to strengthen its monitoring of banks and trust firms to clamp down on operations that had funneled funds to developers and home buyers in ways that allowed them to use the debts as if they were their own capital. Controlling the risk stemming from such operations should be the CBRC's priority, Shang said at the meeting.

The 25-person Politburo, the Communist Party's top decision-making body, took aim at soaring property prices in July by listing "repressing asset bubbles" as an important task for the remainder of the year. Yet home prices in most of the 70 cities monitored by the National Bureau of Statistics have continued to rise. The average price of a new home in the southern coastal city of Xiamen, for example, increased by almost 3% from August to September, and was 46.5% higher compared with the same month a year ago.

This has led to tough government action. More than 20 cities rolled out unusually harsh restrictions on home purchases since late September. The Ministry of Housing and Urban-Rural Development in October censured 45 developers and real estate agencies for fanning the property frenzy by using fake ads, for example. Those companies are all in the 16 cities covered by the CBRC notice.

Contact reporter Wang Yuqian (yuqianwang@caixin.com); editor Kerry Nelson (kerry@caixin.com)