Chinese banking regulators warned that risks related to property loans remain high, and vowed to keep a close watch on such lending this year.
"Pressure from risks posed by property loans is still rising. These potential risks cannot be neglected," Wang Zhaoxing, a vice-chairman of the China Banking Regulatory Commission, was quoted as saying by Financial News on Thursday.
He said a high level of liabilities has been accumulated by developers, with more than half of such companies suffering from negative cash flow in the first three quarters of 2012.
"Defaults on mortgage loans have increased in some areas since the third quarter, especially for expensive or big properties."
Wang added that the commission will improve its supervision of liquidity risks and require banks to strengthen their liquidity management.
China's property lending accelerated in the fourth quarter as the real estate market recovered, according to central bank data released in January.
Outstanding property loans extended by major financial institutions went up 12.8 percent to 12.11 trillion yuan ($1.95 trillion) at the end of 2012, 0.6 percentage point higher than in previous quarter.
According to a survey conducted by the China Banking Association last year, nearly 70 percent of Chinese bankers expressed worries over the risks that stem from lending to the property sector.
A report released by the International Monetary Fund on Wednesday warned China of risks related to its rapidly expanding leverage, and said real estate is one of the areas seeing the fastest credit expansion.
Rising home prices cannot simply discount the risks lying in property loans, said Hu Bin, a Moody's vice-president and senior analyst.
New home prices increased by 1.2 percent last month, the eighth rise in past nine months. In March, 68 of 70 major cities witnessed month-on-month increases in home prices, up from the 66 in February, according to the National Bureau of Statistics on Thursday.
"The previous rounds of property control measures from the government have led to consolidation within the property industry and the dropping out of some of the weakest players, which means more tightening would probably hit bigger ones, and that could cause much more serious problems for banks," Hu said.
Apart from fending off property lending risks, the commission has also ordered banks to submit details of their lending exposure to other financial institutions through the interbank market by May 8, China Business News reported on Thursday. Such financial institutions include banks, brokerages and investment funds.
The report said the move came after the Basel Committee on Banking Supervision suggested controlling interbank risk exposure by limiting exposure to 25 percent of a bank's first-tier capital.
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