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Report: Chinese regulator warns lenders on M&A loans for Shanghai land deals

The China Banking Regulatory Commission's Shanghai bureau told banks in the city to rein in acquisition loans for deals where the underlying asset is land, amid a nationwide effort to control financial risks, Caixin reported Jan. 31.

In a Jan. 24 notice sent to Shanghai-based banks and financial companies, the regulator said the high proportion of M&A loans to real estate projects is "inconsistent" with the official guidance of prudence in the development of acquisition lending.

Such loans typically involve deals where the main assets are land parcels, which make them "effectively transfers of land use rights," the bureau noted.

The Shanghai bureau added that banks are barred from, among other things, providing loans to real estate projects where construction has not been approved, as well as projects "disguised" as real estate operations so as to obtain borrowings to pay for land.

The regulator could suspend the M&A lending operations of errant institutions, as well as order "administrative penalties and other regulatory measures," the news outlet noted.

People's Bank of China Vice Governor Yi Gang said recently that the country faces hidden dangers because of rising debt and asset bubble risks that have not been fully contained. He added the central bank will maintain a neutral monetary policy while trying to improve liquidity management.