China’s central bank has claimed it is confident it will be able to manage any spillover effect from China Evergrande Group’s debt problems on the country’s banking system.
A central bank official stated on Friday that the situation is “controllable” and individual financial institutions’ risk exposures are not big.
Chinese authorities are currently urging Evergrande to step up asset disposals and resume projects, Zou Lan, head of financial markets at the People’s Bank of China (PBOC), also told a briefing. But he added that Evergrande had blindly diversified and expanded its business.
Last month, as Evergande’s debt crisis intensified, the PBOC said it would safeguard the legitimate rights and interests of home buyers.
In August, the central bank, as well as the banking regulator, said they had summoned executives from Evergrande and asked them to properly handle its debt risks, and Zou’s comments on Friday were the first public statement by the central bank on the developer since then.
Financial institutions’ appetite for property firms has declined significantly in response to risks at some developers, leading to a significant drop in loans to developers, he said.
“The risk exposure of individual financial institutions to Evergrande is not big and the spillover effect for the financial sector is controllable,” he said.
Some lenders have had “misunderstandings” about the central bank’s debt control policies, causing financial strains for some firms as some new projects are unable to get loans even after firms have repaid existing loans, Zou said.
“This short-term extreme reaction is a normal market phenomenon,” he said.
- Reuters with additional editing by Sean O’Meara