Bubble Watch: Cutting Lending to Local Gov’ts
China’s banking regulator has ordered lenders to stop granting loans to investment vehicles backed by local governments, the latest move to tighten credit standards amid mounting concerns of bad loans down the road, according to a state-media report Wednesday.
The China Banking Regulatory Commission directive affects lending to investment companies used by local governments which have no registered capital and are backed solely by future fiscal revenue, according to reports citing the state-run Shanghai Securities News.
Banks have also been ordered to review existing loans used to finance projects backed by local governments, the report said. (Marketwatch)
Sounds good for a number of reasons:
1. Good for banks. The NPL issue is really coming to the fore again. Anyone remember what happened ten years ago? They still haven’t really fixed that mess.
2. Helps fight corruption. These highly-leveraged local deals involve a lot of corruption. If the parties involved know that quick lending will not be forthcoming, these deals might be scuttled.
3. No money down, big time leverage, local government? You guessed it, we’re talking about speculative real estate development projects. This new guidance is another step towards settling down the bubblicious real estate market.
© Stan for China Hearsay, 2010. |
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