Worries over loans spike

Along with the revival of the Chinese property market, commercial lenders also boosted lending to record high, pushing new credit in the first half to a record 7.3 trillion yuan, far exceeding the full-year target of 5 trillion yuan, as the government looked to a moderately easy monetary policy to bolster the economic recovery.

The total amount of individual mortgage loans nationwide jumped to 466.18 billion yuan in the first half amid rapid credit expansion, up 150 percent over the figure a year earlier.

Shou, who has only been working for two years, has to borrow money from parents and relatives for the down payment to buy the home and pay the rest of the money through a 30-year bank individual mortgage plan.

The Chinese lending spike sparked concerns about whether this would trigger possible rise in bad loans -- like the subprime mortgage crisis in the United States years earlier, but analysts said potential problems were modest.

Ou Minggang, director of the International Finance Research Center of China Foreign Affairs University, told Xinhua Thursday that there were no securities backed with subprime mortgages held by financial institutions in China and the mortgage rate was not adjustable for borrowers as in the United States.

Some homebuyers could pay a zero down payment to get a house before the subprime mortgage crisis in the United States, while this would not happen in China. When home price began to fall in 2006, refinancing had become more difficult for some homebuyers as the adjustable-rate mortgages began to reset at higher rates, so mortgage delinquencies surged and those securities backed with subprime mortgages suffered big losses, Ou added.

"Many Chinese commercial lenders and the banking regulator stressed loan risk control, especially after the subprime mortgage crisis," he said.

Commercial banks in China saw declines in both bad loans and their ratio to total outstanding loans in the first half, as the industry regulator and lenders endeavored to improve loan quality.

The non-performing loans (NPLs) totaled 518.13 billion yuan in China, down 42.2 billion yuan from the beginning of this year and the NPL ratio was 1.77 percent, down 0.65 percentage point, the China Banking Regulatory Commission (CBRC) announced last week.

Liu Mingkang, Chairman of the CBRC, last week called on banks to strengthen risk control and optimize credit structure to prevent possible financial risks amid a surge of bank loans during a speech at an industry conference held in Beijing.

Liu urged banks to lift the provision coverage ratio above 150 percent this year to prevent possible risks. As of the end of June, the provision coverage ratio of commercial lenders in China was 134.3 percent, which was 10.4 percentage points higher than the end of March.

Qin Rui, a senior analyst with 5i5j, told Xinhua Thursday that China could not rule out the possibility that loopholes might exist in the process of home mortgage lending, but most banks took a very tough stance on this issue.

Although Shou had tried several banks, the answer he got was the same. He had to pay at least 30 percent of the home price as the down payment and present documents from his employer to prove his income in order to get the mortgage plan approved from the bank.