China reassures markets about stress tests

Regulators tried to reassure financial markets about “stress tests” ordered on Chinese banks’ real estate lending, saying Friday they do not represent official views of where the market is headed or any impending policy change.

Stock prices of Chinese banks and real estate companies fell this week following reports lenders tested the impact of a possible drop of up to 60 percent in real estate prices.

Banks were told in May to test the impact of possible declines of up to 30 percent in prices, the China Banking Regulatory Commission said.

“Testing all types of circumstances does not represent the CBRC’s judgment about a tendency in the real estate market and does not represent a possible change in policy toward real estate credit,” the agency said in a written statement.

It did not respond directly to reporters’ questions about whether it had ordered new tests based on possible real estate price declines of up to 60 percent.

China’s banks avoided the mortgage-related turmoil that battered Western lenders. But a surge in housing prices has spurred concern about a possible asset bubble that might expose lenders to losses if prices fall and speculators default on loans.

Results of the May tests have not been announced.

The president of Bank of China Ltd., one of China’s four major state-owned lenders, said in May his bank would not suffer a big impact even if prices fell 30 percent.

Beijing imposed lending curbs in April to cool surging housing prices.

The government says prices fell in June for the first time in 18 months, declining 0.1 percent from May but still were up 11.4 percent over a year earlier.

Major Chinese banks are raising billions of dollars in new capital under orders from regulators to strengthen their balance sheets after lending a record 9.6 trillion yuan ($1.4 trillion) last year in support of Beijing’s stimulus.

Source: AP