The China Banking Regulatory Commission (CBRC) will investigate a sudden rash of consumer loans and other bank credit operations that are thought to be fuelling speculation on the country's red-hot stock markets.

Chinese authorities are concerned that stock market fever on the mainland is transferring risks from capital market to banks. If speculators borrow from banks to fund their stock market operations, and then lose their money, the banks could face an avalanche of non-performing loans.

He pointed out that there are many reports of people selling houses to obtain funds for stock market speculation.

The CBRC is also concerned at the source of some of the funds being used for speculative purposes.

"We will look into the source of funds that are entering the market and also at how much money is involved," Monday's China Securities News quoted Fan Wenzhong, deputy director of the CBRC research institute, as saying.

According to the deputy director, there has been a sharp rise in consumer loans and other credit operations recently.

Fan said that the CBRC will probe the increase and take necessary measures. A risk warning system for banks is being studied as well as regulations concerning the sources of fund used for stock market speculation.

Nevertheless, the deputy director believes that much more must be done before the country can be confident of being able to avoid bubbles.

Fan said that the capital market and the banking industry are closely tied and bank exposure to the capital markets is potentially risky.

The CBRC issued a notice prohibiting the improper use of credit in January.

Insiders said that residential loans would come first in a comprehensive investigation nationwide after the Spring Festival.

Source: Xinhua