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By Engen Tham
SHANGHAI/BEIJING, Sept 24 (Reuters) - As fears of contagion from any default by China Evergrande Group mounted this month, some Chinese banks, insurers, and shadow banks stopped offering new credit to property developers, and ran urgent checks on their exposure to the troubled sector.
Carrying $305 billion in liabilities, China's second biggest property developer inched closer to a potential default on Friday by missing the deadline on an interest payment.
Evergrande's problems will pile pressure on peers to access funding, and analysts have warned that if property developers are unable to pay investors, suppliers and lenders China's financial system could go into shock.
"The market is worried that real estate companies have a high concentration of cashflow problems, which would trigger large-scale bad debt risks in the banking system," said Wang Yifeng, analyst from Everbright Securities Co.
Bank of China, the country's fourth largest lender by assets, is monitoring closely all its developer clients, to prevent contagion risks, said a person with knowledge of the matter.
"The expectation is that not only Evergrande, but also some of the top leveraged developers are on edge of liquidity crash even insolvency," said a person at the Bank of Shanghai Co Ltd .
To calm the market and in an unusual move, Chinese lenders including China Minsheng Bank, China Zheshang Bank and China Everbright Bank have been publicly reassuring and voluntarily disclosing their exposure to Evergrande and the property sector.
But internally, financiers are scrambling to reduce their exposure to "non-quality property assets", bracing for a sharp deterioration in the financial health of some developers.
CREDIT STRESS
Alarmed by what has happened to Evergrande, bankers at one Shanghai branch of China CITIC Bank Corp started scrutinizing loans to developers, reviewing their accounts and repayment terms, said a person with direct knowledge.
CITIC Bank said it was fully prepared for the possible risks raised by Evergrande, had increased loan loss provisions and risk resistance.
Once China's top-selling developer, Evergrande now looms as a seismic bust as a crackdown on debt ends a freewheeling era of building with borrowed money which became infamous for ghost cities.
Having taken the precaution of tightening credit for Evergrande a few years ago, Huarong Asset Management Co has in the past couple of weeks tightened the approval process for other developers, making it harder for them to raise money for projects in lower tier cities.