More Signs Of Concern Over Bad Bank Loans

China’s banks face a new round of stress tests to see how their loan books would withstand the measures to cool the property market actually succeeding. State media report that the China Banking Regulatory Commission ordered the tests on Tuesday and instructed banks to strengthen their risk management over loans to property developers and to the off-balance sheet investment companies local governments use to circumvent restrictions on raising capital.

The banks faced a similar round of testing last year, which reportedly showed that they could stomach a 30% decline in property prices. The new round suggests growing nervousness among banking regulators about the health of the banks’ loan books and the potential for more lending to turn sour as a result of the property bubble going pop or a crisis in local government financing.

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