China says consumer loans can't be used to 'fuel property bubble', launches probes

BEIJING (Reuters) - China has launched probes into consumer loans that are being misused for home purchases, warning they cannot be used to “fuel property bubbles”, a senior banking official said on Friday.

“An important lesson of the U.S. subprime mortgage crisis was financial institutions lent excessively to people who were incapable of paying back the loans,” Xiao Yuanqi, chief of the prudential regulation bureau at the China Banking Regulatory Commission (CBRC), told a news briefing in Beijing.

“China must prevent this tendency.”

The investigations are being carried out by local offices of the CBRC and the central bank in some regions, Xiao said.

He did not specify the locations, but two banking sources told Reuters last week that the banking regulator of China’s northwestern province of Shaanxi has ordered inspections of local banks to better gauge financial risks from illegal lending to the real estate sector.

China has made reining in financial risks one of its top priorities this year, and taming soaring housing prices has been a key goal in the push to defuse property bubbles.

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China’s home prices have surged since late 2015, with the biggest cities including Shenzhen and Shanghai the first to see huge spikes in their markets.

Home prices in smaller cities started to climb last summer as property curbs in big cities prompted speculators to look elsewhere. The rally spread to smaller tier-3 and tier-4 cities this year.

While China has introduced a flurry of measures to dampen speculation, including raising the downpayment ratio in some cities, cases of savvy buyers skirting the rules have been reported by Chinese media.

Short-term household loans in August doubled from July to 216.5 billion yuan ($32.57 billion), reflecting a surge in consumer lending as some home buyers may have turned to short-term consumer loans due to curbs on mortgages, analysts said.

Reporting by Shu Zhang and Se Young Lee; Writing by Yawen Chen; Editing by Kim Coghill