China queries banks on loans to foreign-owned firms

By Samuel Shen

SHANGHAI (Reuters) - China's banking regulator has ordered lenders to report on the volume and status of their loans outstanding to foreign-owned firms, due to concerns about possible defaults, banking and regulatory sources with direct knowledge of the situation said.

The China Banking Regulatory Commission (CBRC) is requiring both foreign and domestic banks nationwide to submit detailed information on the loans, including the names of the largest borrowers, said the sources, who declined to be named.

Regulators will use the data from the reports for a thorough analysis of lending to foreign-owned firms, especially those in labour-intensive manufacturing industries, according to a commission notice seen by Reuters and sent to banks in Shanghai.

Concerns about potential defaults heightened after Singapore-listed FerroChina (FERR.SI), a China-based steelmaker registered in Bermuda and controlled by Taiwan management, ceased its China operations earlier this month and said it would be unable to make loan payments to Citibank (China) (C.N), BNP Paribas (BNPP.PA), China Construction Bank (0939.HK) and Commerzbank (CBKG.DE).

Worries had already been mounting over asset quality at Chinese banks as an increasing number of manufacturers reported losses or went bankrupt due to weaker exports and sluggish consumer demand, as the global economy falters.

Many manufacturers in China are owned by foreign investors or controlled by off-shore vehicles.

Chinese media have also recently reported rising defaults by South Korean-owned companies as they pulled out of labour-intensive operations in eastern China's Shandong province.

In its notice to lenders, the banking regulator urged them to learn from previous cases in which foreign investors transferred profits and assets out of China and dodged loan repayments.

Banks are required to complete forms detailing their loans outstanding to foreign-owned firms as of June 30, categorised by industry and their clients' nationality, according to the notice.

(Reporting by Samuel Shen; Editing by Edmund Klamann)