An official from China's banking watchdog on Saturday warned of potential risks in hefty amounts of loans for real estate.

Real estate ranked the 4th place among the ten industries that contributed most to non-performing loans at state banks in 2004, according to Yan Qingmin, a deputy department chief of the China Banking Regulatory Commission (CBRC).

Loans extended to the real estate sector reached as much as 2.6 trillion yuan (US$314 billion) in the first quarter of the year, including 800 billion yuan (US$96.6 billion) used for property development.

Much of the real estate loan lacks liquidity, posting a big threat to the stability in China's financial market, he pointed out at a local forum.

Clients even use falsified documents to get mortgage loans, which should be put under "close supervision," he said.

One-third of the real estate loans were long- and medium-term ones that should be serviced in one year or more. "The ratio is too high, meaning that it would be more difficult for banks to control risks," Yan added.

The CBRC official suggested measures be taken to diversify financing channels for the real estate industry to shrug off heavy reliance on bank loans.

(Xinhua News Agency May 30, 2005)