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China Tells Banks: Brace For 60% House Price Drops

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http://noir.bloomberg.com/apps/news?pid=20601087&sid=amL1TmzgvMCw

China Said to Tell Banks to Stress Test for 60% Home-Price Drop

By Bloomberg News

Aug. 4 (Bloomberg) -- China’s banking regulator told lenders last month to conduct a new round of stress tests to gauge the impact of residential property prices falling as much as 60 percent in the hardest-hit markets, a person with knowledge of the matter said.

Banks were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively, the person said, declining to be identified because the regulator’s requirement hasn’t been publicly announced. Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.

The tougher assumption may underscore concern that last year’s record $1.4 trillion of new loans fueled a property bubble that could lead to a surge in delinquent debts. Regulators have tightened real-estate lending and cracked down on speculation since mid-April, after residential real estate prices soared 68 percent in the first quarter from a year earlier, according to estimates from Knight Frank LLP, the London-based property adviser.

The China Banking Regulatory Commission said in a July 20 statement that banks should “continue to deepen” stress tests on lending to property and related industries, citing a speech by Chairman Liu Mingkang during a meeting attended by regulatory officials and bank heads. The release didn’t give details. Officials at CBRC didn’t return calls seeking comment.

Results from previous stress tests show that the ratio of non-performing real estate loans among Chinese banks would rise by 2.2 percentage points if home prices drop 30 percent and interest rates rise by 108 basis points, the person said. Pretax profits would fall 20 percent under that scenario. A basis point is 0.01 percentage point.

Property Slowdown

Measures to cool property-price gains included raising minimum mortgage rates and down-payment ratios for second-home purchases, and a suspension of lending for third homes.

Property prices in 70 Chinese cities dropped 0.1 percent in June from the previous month, the statistics bureau said July 12. Prices rose 11.4 percent from a year earlier, the second monthly slowdown after April’s record expansion.

Bank of China Ltd.’s bad-loan ratio would climb 1.2 percentage points under the worst-case scenario drawn up in the latest stress tests, Li Lihui, president of the nation’s third- biggest lender by market value, said May 27.

Record lending last year in China and the ensuing surge in home prices have stoked concerns that a bubble is forming that may threaten the banking industry. Property stocks are the worst performers on the Shanghai Composite Index this year with an average 21 percent drop, data compiled by Bloomberg show.

Rogoff’s Warning

China’s property market is beginning a “collapse” that will hit the nation’s banking system, Kenneth Rogoff, a Harvard University professor and former chief economist of the International Monetary Fund, said July 6.

Average prices may fall as much as 20 percent over the next 12 to 18 months, with declines of up to 40 percent in “big bubble” cities, Nomura Holdings Inc. said in a July 2 report. The impact on banks’ asset quality will still be “limited” as long as borrowers have adequate income to keep paying their mortgages, Nomura said.

The banking regulator has reminded lenders that some developers with high debt burdens and large land reserves already face the risk of a funding collapse, the person said. Banks were told to gauge developers’ real borrowing needs by monitoring the progress of projects under construction and to “strictly” control the pace of lending, the person said.

“Special mention” real-estate development loans have climbed in Shanghai since April and rose by 1.4 billion yuan ($207 million) in June, Xinhua News Agency reported Aug. 1, without saying where it got the information.

Edited by AvidFan

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Seems to be underegging it to me.

To give a true assesment id be looking for testing of at least 120% drops, 150% in some areas away from the River Yangtze

You bear you! Now growl for me! :lol:

Edited: How do you get a >100% price reduction? Pay someone to take it from you?

Edited by AvidFan

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A 50-60% stress test is standard.

non-story.

Really? How come our banks were only stress tested for 40% drops then?

Edited by AvidFan

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Really? How come our banks were only stress tested for 40% drops then?

To pretend they're still solvent.

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Guest DissipatedYouthIsValuable

Lecoveleh not rocked in?

I bet the Dairy Expless is not telling everyone house prices are going up 20%.

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Lecoveleh not rocked in?

I bet the Dairy Expless is not telling everyone house prices are going up 20%.

Your accent might be racist :unsure:

I'm just sayin' <_<

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Lecoveleh not rocked in?

I bet the Dairy Expless is not telling everyone house prices are going up 20%.

Gimme dorrar, ruv you rong time!

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So?

When the crash comes it will wipe out the arrogant rent seeking sods.

There are still 1000million of them who aren't middle class or in the party you know.

This wipes out 300 million people who hoover up almost all of the property in China that is built. Nearby the workers stadium in Beijing there are huge apartment complexes which remain empty. The Beijing council built these small flats for key workers and low paid people who had been evicted from the destroyed Hutongs.

The middle classes and commie party types instead bid them up and bought them enmasse, in many cases they remain empty. Other times the landlords cut them into 4x2x4ft 'rooms' to be rented out for 100rmb a week.

It is the middle class greedy sods who over extended themselves who are going to be wiped out.....

And quite frankly it is about time too, I really hate Beijing and Shanghai these days it was an ok place to go in the 1990s but today it is completely filled with The Wilsons /Anthea turner. Types, the parents are often ok level people (who understand it could have all gone wrong as per Injin's recognition of luck issue). But their children appaulling with a sense of entitlement and 'achievement' that is gigantic when really they exist on their parents money and go to tier 3 (degree mills). My treks to beijing they love looking down at me. When the crash comes these people will have NOTHING.

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When the crash comes these people will have NOTHING.

Have to agree. I think China has the potential to be the most centric, unequal empire in modern history. 5% total exports and a few trillionaires - that kind of thing. It's not because I have a poor opinion of what China is, it's just that marshalling that many people will, through necessity, require huge bubbles to pull everyone in the same direction. The person or people sat at the top of such movements will become extremely rich.

Edited by AvidFan

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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