China's banking regulator warns of speculation on mortgage

Shanghai's banking regulator said on Sunday that all local banks must strictly abide by the lending policies, in a bid to combat speculation and stabilize property prices.

In line with the tightening policy, spots checks will be conducted, said the banking regulator. The statement is in response to recent media reports that the banks gained lots of profits from mortgages by lowering lending standards to the second-home buyers.

China Construction Bank<601939><939> announced recently to give favorable policies and a lower interest rate to the family members who have a living area of less than 26.6-sq-m in their first home, and the move was followed by other banks.

No policy violations have been found after the authority's investigation. Analysts said the government will continue to use the tightening policy to cool the overheated property market.

Last year, the central bank and the China Banking Regulatory Commission (CBRC) increased the requirement for mortgage deposits for second-home buyers to at least 40%, with a 10% premium on the interest rate.

Chinese regulators are now supervising the situation, warning banks of potential risks in a liquidity-driven property boom, and said that most banks have adjusted their mortgage lending.