Chinese Bank Shares Fall Sharply (AP) (21-01-2008)

BEIJING (AP) -- Banks in China saw their shares fall sharply Monday following the news reports regarding the possibility that the Bank of China might write down holdings of U.S. mortgage securities and two others increased reserves for possible losses.

This comes as the first indication that Chinese banks, which had to date avoided damage from the U.S. credit crisis, might face problems due to their holdings of subprime securities.

Another factor weighing on financial stocks, was that China's banking regulator warned that lenders might face risks from fluctuations in fast-rising real estate prices.

Meanwhile Hong Kong's South China Morning Post newspaper reported that Bank of China is expected to announce a "significant writedown" on its $7.95 billion in U.S. subprime mortgage securities. The bank’s spokesman declined to comment.

Bank of China shares fell 4.1 percent in Shanghai market and by 6.4 percent in Hong Kong. China's biggest banks are listed in both cities, with shares in Shanghai off-limits to most foreign investors, while Hong Kong is open to global traders.

The fall in bank stocks helped to drive overall market declines in both cities, with Shanghai's main index sinking 5.1 percent and Hong Kong plunging 5.5 percent -- its biggest percentage drop since 2001.

Bank of China, China's biggest owner of subprime mortgage securities, said in October they were 3.05 percent of its total holdings. The bank said it had set aside $473 million for potential writedowns.

Bank of China reported profits of 15.9 billion yuan ($2.12 billion) for the July-September quarter, up 23 percent from the same period of 2006. It says it has more than 5.8 trillion yuan ($775 billion) in assets.

Two other major lenders, Industrial & Commercial Bank of China and China Construction Bank, are increasing reserves for possible writedowns on subprime mortgage holdings, the respected Chinese business magazine Caijing reported.

Chinese regulators have raised interest rates repeatedly over the past year and tightened lending standards in an effort to cool a boom in investment in real estate and other assets. They have warned repeatedly that runaway spending could lead to a debt crisis if investors in ill-conceived plans default on loans.

Source: Yahoo