Chinese banks are growing alarmed by a rising number of defaults among jewelry manufacturers, prompting them to review new gold lending more carefully in the world's biggest consumer, according to sources with direct knowledge of the issue.
The top four Chinese banks alone have up to 443.4 billion yuan ($69.63 billion) tied up in gold leasing, so any pull back could cut China's imports and hit global bullion prices that are already languishing at the lowest in more than five years.
Bank of China, the country's fourth-biggest lender by assets, has seen at least one default on a loan, said two sources familiar with the issue, who declined to be named as they were not authorized to speak to the media.
Other banks, from major players to smaller lenders, have also seen defaults by jewelry makers, said four sources.
The defaults are still only a small percentage of total gold loans but banks are already taking steps to slow the pace of such lending, the sources say.
"Banks are generally taking a more cautious approach to gold leasing," said Samson Li, senior analyst with GFMS, a metals consultancy owned by Thomson Reuters.
"If there is a massive default, they will significantly cut back on this business, and that will affect China's imports," he said.
Gold leasing has grown rapidly in the last few years, as tight credit conditions drove companies to look for alternative ways to raise money.