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Chinese bank shares fall sharply
2008-01-21
Shares in China's banks fell sharply Monday after news reports said its No. 2 lender, Bank of China, might write down holdings of U.S. mortgage securities and two others increased reserves for possible losses. The reports were the first indication that Chinese lenders, which have so far avoided damage from the U.S. credit crisis, might face problems due to their holdings of subprime securities. Also Monday, China's banking regulator warned that lenders might face risks from fluctuations in fast-rising real estate prices. Bank of China is expected to announce a "significant writedown" on its $7.95 billion in U.S. subprime mortgage securities, Hong Kong's South China Morning Post newspaper reported, citing unidentified sources. Bank of China spokesman Wang Jianping declined to comment. He said the bank would release details of its assets in late March when it announces annual earnings. Bank of China shares fell 4.1 percent in Shanghai market and by 6.4 percent in Hong Kong. China's biggest banks are listed in both cities, with shares in Shanghai off-limits to most foreign investors, while Hong Kong is open to global traders. The fall in bank stocks helped to drive overall market declines in both cities, with Shanghai's main index sinking 5.1 percent and Hong Kong plunging 5.5 percent -- its biggest percentage drop since 2001. "The subprime woes in the U.S. have raised concerns at home about risks in the domestic mortgage market and prompted selling in banking and real estate companies," said Wang Junqing, an analyst at Guosen Securities in Shanghai. Bank of China, China's biggest owner of subprime mortgage securities, said in October they were 3.05 percent of its total holdings. The bank said it had set aside $473 million for potential writedowns. Bank of China reported profits of 15.9 billion yuan ($2.12 billion) for the July-September quarter, up 23 percent from the same period of 2006. It says it has more than 5.8 trillion yuan ($775 billion) in assets. Two other major lenders, Industrial & Commercial Bank of China and China Construction Bank, are increasing reserves for possible writedowns on subprime mortgage holdings, the respected Chinese business magazine Caijing reported. ICBC, China's biggest commercial lender, raised reserves to cover 30 percent of its subprime holdings, while Construction Bank's reserves covered 40 percent of its holdings, the magazine said, without citing sources. The two banks' subprime holdings are much smaller than those of Bank of China, at about $1 billion each, and writedowns should not affect their profits, the magazine said. Phone calls on Monday to the press and investor relations offices at both ICBC and Construction Bank were not answered. ICBC shares fell by 7.8 percent in Hong Kong and 3.8 percent in Shanghai, while Construction Bank was down 6.4 percent in Shanghai and 4.1 percent in Hong Kong. China's banks have seen revenues and profits soar in recent years, driven by a fast-growing economy and rising real estate prices. But the country's industry regulator warned in a report released Monday that they might face higher risks from fluctuating real estate prices and financial conditions. "Property market price fluctuation possibly could increase credit risks facing the banking industry," said Jiang Dingzhi, vice chairman of the China Banking Regulatory Commission, said in a report on the agency's Web site. Jiang gave no details but called on banks to improve risk management. Chinese regulators have raised interest rates repeatedly over the past year and tightened lending standards in an effort to cool a boom in investment in real estate and other assets. They have warned repeatedly that runaway spending could lead to a debt crisis if investors in ill-conceived plans default on loans. ___ On the Net: Bank of China: http://www.boc.cn Industrial & Commercial Bank of China: http://www.icbc.com.cn China Construction Bank: http://www.ccb.com.cn China Banking Regulatory Commission: http://www.cbrc.gov.cn
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