Chinese banks cut loans for the metallurgical sector

Growing concerns about the financial health of overblown industries have prompted many banks to cut lending to these sectors by as much as 20 percent.

Banking and industry sources say that at the same time, the China Banking Regulatory Commission (CBRC) has called on banks to submit their regular report on outstanding loans due from various sectors. But they were asked to include long-term loans related to productive financial instruments and debt financing. The inclusion of these circumstances is a new development.

The move comes in the wake of the regulator's historical concerns about the financial risks associated with heavily indebted sectors such as metallurgy and shipbuilding. The bank's official source said that specific sectors to be audited have been identified. These include steel, cement, glass, aluminum smelting and shipbuilding.

So far, it is not clear whether the CBRC is focused on specific derivative loans or debt financing. But one problem area may be getting bank loans for clients who use imports of goods such as steel or copper as collateral.

The KBRK has not set any lending cut targets, but banks began to cut lending late last year in a fight against sectors. Some steel mills received letters from their banks this month stating that their 2014 credit limit will be 20 percent below the amount they borrowed in 2013.