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Banks clamp down loans misuse

By Wang Zhenghua (China Daily)
Updated: 2007-02-08 08:53

SHANGHAI: Domestic banks in China's major cities are tightening supervision on loans, particularly mortgages, to prevent money from being diverted to the bullish but possibly overvalued stock market.

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The country's benchmark Shanghai Composite Index has skyrocketed 130 percent since early last year, enticing some market players and firms to misuse loans for equities trading, and potentially adding to the increasing number of non-performing loans.

Major Chinese banks said they will strengthen checks on the use of their loans. File

In Hangzhou, capital of East China'sZhejiangProvince, a bank official estimated up to 70 percent of its customers used part of their mortgages for equity or fund purchases.

The crackdown came after the country's banking regulator recently exposed the practice, threatening stricter checks later this month.

The outstanding performance of China's stock market has seen massive withdrawals from banks recently Shanghai's benchmark indicator closed at 2,716 points yesterday.

But many banks are facing an increasing rate of non-performing loans due to inappropriate use of funds.