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Shanghai banks to bar loans for stocks

(Shanghai Daily)
Updated: 2007-02-07 17:18

The Shanghai banking watchdog has urged lenders to tighten their loan-examination procedures to prevent diversion of credit into the stock markets.

People and companies that misuse loans for equities trading risk a black mark on their nationwide credit records, according to a regulatory document obtained by Shanghai Daily.

The document has been dispatched to banks in Shanghai, including state- owned, joint-stock, city commercial and overseas lenders.

"In recent checks, irregularities have been found among a small number of companies that have misused lending for equities investment," the China Banking Regulatory Commission said. "To avoid such cases, banks are strictly banned from lending to companies or individuals who use the money for the stock markets."

The benchmark Shanghai Composite Index has surged around 130 percent since the start of last year, raising concern among financial authorities that mortgage loans and personal lending have been diverted into stock investment.

The document calls for stepped-up checks to verify how loans are used.

The Shanghai branch of the Industrial and Commercial Bank of China, the country's biggest lender, confirmed it is strengthening checks on individual lending.

If irregularities are found, the culprits are asked to immediately repay their loans.

The Bank of Communications and China Merchants Bank said they are very cautious in their loans approvals but declined to provide details.

Borrowing money for stock trading has always been banned in China. The bullish stock market spurred authorities to reiterate the policy to cool what some officials said is an overvalued market.