CBRC Warns Trusts Over Exposure to Property Market Adjustments

Economic Obsever Online
November 18, 2010
Translated by Chen Ximeng
Original article: [Chinese]

The China Banking Regulatory Commission (CBRC) has issued a notice warning trust companies about the possible risks posed by "property market adjustments."

Firms have been asked to perform intensive risk assessments on property trusts. These assessments include checking whether development projects meet the standard requirements, whether developers and shareholders have proper qualifications and whether the project has the minimum amount of capital required by national law.

Additionally, the CBRC will monitor the trust investment firms lending to property projects, looking for any speculative investments disguised as loans.

An unnamed market analyst told the EO that the measure a sign of the CBRC's increased efforts to stem illegal financing.

As the central government begain to tighten bank lending to the property sector, Chinese property developers have been relying more on property trust products sold by the trust companies as a channel to raise funds for new projects.

Property trusts have grown rapidly over the past few months. According to figures from the China Trustee Association, 13.4 percent of the 2.8 trillion yuan worth of funds invested in trusts over the past 9 months - equivalent to about 380 billion yuan - have gone into the real estate sector.

Property trusts have the potential to be enormously profitable for struggling trust firms. But, since the property market is facing increasingly tight regulation, trust loans also pose an increasingly significant risk to these firms.

Earlier this year, the CBRC ran stress tests on the country's trust firms to see if they could withstand a downturn in the property sector.

This article was edited by Ruoji Tang