China’s Largest Banks Wounded By Property Sector Rout
The ongoing crisis in the property market of China has left five of the country’s largest banks wounded, with the first half of the year recording a surge in bad debts related to real estate.
Despite that and amidst an economic slowdown, the banks were still able to post modest profits.
Results for the first half
The results for the first six months of the year come after the second largest economy in the world was able to avoid a contraction in the second quarter, albeit narrowly.
Nonetheless, both business and consumer confidence suffered because of the decline in the property sector and the widespread COVID-19 lockdowns in the country.
Exchange filings on Tuesday showed that there was a 20% and 68% increase in bad real estate debts in the first six months of the year for Bank of China Ltd (BoC) and China Construction Bank Corp (CCB), respectively.
Meanwhile, the Industrial and Commercial Bank of China Ltd (ICBC), which is the largest commercial bank in the world in terms of assets, saw bad debt related to the real estate sector rise in the first half of the year by 15%.
ICBC’s vice president, Wang Jingwu said that the downward pressure on the economy and the epidemic made for a grim and complex operating environment for banks.
He added that the economic cycle and epidemic had greatly affected some customers and industries, which made it difficult to operate.
On Wednesday, Zhang Jinliang, the president of CCB, also echoed the same sentiments. He said that there was a large downward pressure on the Chinese economy this year.
The three banks are the latest to have reported rising bad debt in the property sector, as the first half was quite gloomy.
Housing projects came to a halt because of rising developer defaults and this led to mortgage boycotts.
Agricultural Bank of China Ltd (AgBank) and the Bank of Communications (BoCom) also issued similar warnings of caution and their bad debt levels were also similar.
According to analysts, the non-performing ratio of Chinese banks in the property development sector is expected to increase to 5.5% to 5.6% by the end of the year, a rise from 2.6% at the end of last year.
BoC’s chief, Liu Jin disclosed on Wednesday that even though there was a rise in bad debts in the property sector, the state regulators and council want the bank to increase their lending.
Market analysts said that mortgage defaults are a financial stability problem, along with a social stability problem. This is because the mortgage is usually regarded as a bank’s good-quality asset.
Vice president of CCB, Li Yun disclosed that the overdue mortgages as a result of mortgages were around 1.4 billion yuan in July.
Analysts have also warned that smaller lenders are likely to suffer more because of the flux in the property sector.
Market analysts said that regional banks operating in local markets that have been exposed to a fall in housing prices are more likely to take a hit.