CHINA'S banking regulator has ordered lenders to stress-test their loans to the real estate sector to measure the impact of a 50 per cent fall in property prices, a report said overnight.
The request comes amid growing concerns about massive lending to the red-hot property market, which authorities fear could see a fresh crop of bad debts if prices were to fall sharply and derail the world's third largest economy.
The news sent Chinese shares down 0.67 per cent on Thursday, with property developers taking a hit.
Last October, the China Banking Regulatory Commission ordered lenders to conduct stress tests at least every quarter to strengthen liquidity risk management, Dow Jones Newswires said, as soaring prices fuelled fears of a bubble in the sector.
Since the middle of this year, banks have been conducting a new round of tests based on an extreme scenario in which property prices plunge by around 50 per cent, the report said, citing an unnamed CBRC official.
A stress test in April, based on a scenario in which property prices fell 30 per cent and interest rates rose by 108 basis points, showed positive results, the report said.
The tests are based on various assumptions, such as massive deposit withdrawals, an increase in fundraising costs, a credit rating downgrade and borrowers' bankruptcies, it said.
However, the official cautioned that some risks may be still to emerge because some loans such as mortgage loans would span long periods such as 15-30 years, in which property prices and other conditions might significantly change, the report said.
A CBRC spokesman would not comment on the report when contacted by AFP.
In the past few months, the regulator has repeatedly urged banks to closely monitor property loans on concerns of deterioration in banks' asset quality.
The government has also taken a series of measures to curb property prices from rising too rapidly, including higher down payment requirements and mortgage rates for house purchases.
Chinese property prices in June fell 0.1 per cent from the previous month, their first monthly fall since the first quarter of 2009, according to official data.
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