(Yicai Global) April 23 -- China Merchants Bank's Shenzhen branch has recalled three loans following an investigation by the city’s financial supervisory authority into whether low interest-bearing business loans issued to help firms affected by Covid-19 were being used as illicit mortgages.

The Shenzhen Futian Yinzuo Rural Bank, the Bank of China’s Shenzhen branch and the Bank of Shanghai’s Shenzhen division were all found to be in the clear, the People’s Bank of China’s local branch reported yesterday.

All three banks have rejected some business loan applications that might have been used in the property market, they said. They also have restrictions on the length of time the company has been in business and the firm’s turnover.

House prices in Shenzhen rose 1.6 percent last month from February, the highest gain in a survey of residential house sales across 70 cities conducted by the National Bureau of Statistics.

Five-times more online pre-owned property transactions took place in March than in February, amounting to 8,462 units.

In the wake of the novel coronavirus epidemic, the hi-tech metropolis has been issuing low interest loans to support businesses. Company owners who use their fully paid-up property as collateral can borrow funds at an annual rate of between 3.9 percent and 4.5 percent, around 70 percent of standard mortgage levels. Micro and small firms are also eligible for even cheaper loans with an annual rate of 2 percent, the Guangzhou Daily reported, citing a banking sector insider.

However, some business owners have been taking advantage of these subsidies to use these loans to buy property. Any institutions or individuals found to be using low interest loans for undeclared house-buying will be punished according to the law, the city’s Service Bureau for Small and Medium-Sized Enterprises said on April 20.

Banks should check if company owners have bought any property since the outbreak of Covid-19 on Jan. 25, whether they have leveraged these properties to take out more loans, which subsidies they have applied for and what the borrowing cost on the loan is expected to be, the PBOC’s Shenzhen branch said on April 20.

They should also conduct background checks of these debtors to verify if they have any other mortgaged properties, when their companies were established and the authenticity of their businesses, it added.

Editor: Zhang Yushuo, Kim Taylor