Thursday May 15, 09:45 AM
China banks 'stable' relative to property exposure - Moody's
BEIJING (XFN-ASIA) - Moody's Investors Service said the outlook for Chinese banks is 'stable' relative to their exposure to the property development sector over the next 12 months as rated banks have adequate capacity to absorb
potential real estate-related credit losses.
In a report, the ratings agency said that while it recognizes that the banks' exposure to the property sector has steadily increased over the past decade, their expansion into real estate lending, in particular home mortgages, is also a net long-term benefit.
However, the speed of credit growth linked to the property sector raises concerns over the ability of risk management systems to adequately capture the risks coming from the sector, Moody's said.
Over the past 10 years, growth in real estate-related loans has consistently outpaced that of other loans, with their share in total lending rising from less than 4 pct in 1998 to nearly 20 pct in 2007.
'Against this background, anecdotal reports suggest that credit administration and monitoring may not have kept pace with this growth, and developers have circumvented macro-economic lending controls by indirectly accessing bank financing,' said Moody's analyst Richard Lung.
'In fact, the banking sector's credit exposure to this sector may be higher than that indicated in the banks' published financial reports,' Lung said.
The report noted that a key risk that banks have historically faced in the residential mortgage market is the prevalence of mortgages obtained under false pretenses and that some developers and borrowers have jointly manipulated credit approval procedures and forged certificates and documents.
'Such developments negate the diversification benefits usually derived from mortgage lending,' said Lung.
According to Moody's, Chinese banks' total risk exposures to property-related loans are most likely higher than that indicated by their reported financial statements and developers have been known to access bank loans through non-real estate affiliates or larger companies in order to side-step tightening controls.
But a repeat of losses incurred from a massive property downturn, such as that of the 1990s, is unlikely as regulations tightened on property development and mortgage lending since 2001, lowering credit risk.
In terms of mortgages, household solvency remains high and the ability to service debt manageable, Moody's said.
The ratings agency said that given the varying degree of reported property concentrations, smaller mid-sized joint-stock holding commercial banks are more sensitive to losses in the property sector while the large state-owned commercial banks are less vulnerable.
While Moody's believes that the outlook for Chinese banks is stable, it remains negative on the property development sector because of tighter liquidity and more volatile property prices.
|
Send Article by Email
