Sub prime loan crises may affect some Chinese banks

By Ding Qi (chinadaily.com.cn)
Updated: 2007-08-08 14:39

The latest US sub prime loan crises didn't render Chinese banks safe. A US report said Chinese financial institutions had bought US$107.5 billion worth of US mortgage securities by the end of June last year, accounting for 47.6 percent of similar investments amongst Asian countries.

And a part of those may be the highly risky sub prime loan securities, the Shanghai-based Oriental Morning Post quoted an industry insider as saying today.

According to a report from the United States Department of the Treasury, several large banks from China have bought sub prime loan backed securities.

Bank of China (BOC) was thought to be the biggest buyer. Sources said that by the end of last year, BOC held US$90.1 billion worth of US bonds. Assuming five percent of them are securities related to sub prime loans, capital at risk could total in the multi-billion dollar range.

However, BOC officials didn't expect such a serious outcome. Zhu Min, vice president of the bank, said BOC did invest several billion dollars in the sub prime loan bonds, but the loss is thought to be only millions, only slightly impacting the bank's overall operations.

The report also said investment from Industrial and Commercial Bank of China, Bank of Communications, and China Construction Bank also included sub prime loans, although most of them said the amount was not large enough to seriously affect revenue.

Chinese banks may want to remain vigilant against the looming depression trend in the US property market.

The US American Home Mortgage Corporation, the nation's second largest mortgage loan institution, filed for bankruptcy due to financing limitations from banks. In addition, major mortgage loan companies also started to reject new loan applications. These events should serve as a warning call for financial investors from China.

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