China’s financial regulator has launched a nationwide inspection of banks’ risky business practices, focusing on consumer loans and real estate lending in regions with high levels of household debt, two sources with knowledge of the matter told Reuters.
The local branches of the China Banking and Insurance Regulatory Commission (CBIRC) have deployed teams of officials to commercial banks where they will stay for at least a week and assess bank loans and client information, the sources said.
In cities with highly leveraged households, the CBIRC officials are seeking to assess the quality of various forms of consumer lending - including credit cards and loans backed by homes - and also check if any of the credit is being illicitly used to pay down mortgages, the sources said, declining to be named because they were not authorized to speak to the media on the matter.
China is in the second year of a nationwide crackdown to reduce risks in the financial system. A “regulatory windstorm” has been unleashed by the authorities on shadow banking, regulatory arbitrage and hidden bad debt.
But Beijing is concerned that despite the crackdown, consumer loans are still being used to speculate on homes, resulting in a rapid buildup in household debt, the creation of a housing bubble, and a falling national savings rate, one of the sources said.
The CBIRC did not immediately respond to a request for comment outside business hours.
Last month, CBIRC Chairman Guo Shuqing said reducing household leverage is among the government’s major policy goals. Central bank governor Yi Gang also warned that household debt has been increasing at a relatively fast pace.
Before the Lunar New Year, which began in mid-February this year, the CBIRC already told banks to conduct checks themselves on their consumer loans, the sources said.
Last year, the former China Banking Regulatory Commission (CBRC), before it was merged with the insurance watchdog last month, had rolled out measure after measure to contain risks from rising debt in China’s financial system.
The CBRC, in a January notice to its local bureaus and banks nationwide, said it will focus on 22 major areas of financial chaos in 2018.
That includes violations of the central government’s real estate and credit policy, shadow banking, illicit interbank and wealth management products, hidden bad loans and poor internal controls and corporate governance.
Han Yi, chief banking regulator in mainland China’s financial hub Shanghai, told Reuters in March that the Shanghai banking regulatory commission will closely monitor if credit is flowing into the real estate market through illicit channels.