China regulator warns banks on rising risk of loan defaults

China’s chief banking regulator instructed lenders to take action to curb the effects of possible defaults resulting from local government budget shortfalls and slower sales for property developers, Bloomberg reported, citing a person familiar with the matter. Shang Fulin, chairman of the China Regulatory Banking Commission (CBRC), told lenders to speed up asset sales and debt restructuring for local governments that are struggling to repay their loans. Shang, who replaced Liu Mingkang as chairman last month, also said banks should limit “high-risk” loans to developers, which could default as property sales slow. “He’s trying to show that he is aware of the problems and he can also be tough,” said Barry Naughton, a China specialist at the University of California, San Diego. The CBRC also told banks to inspect loans to local government, 35% of which will mature in the next three years.