Top Chinese banks warn of spillover risks from property crisis (2024)

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Top Chinese banks warn of spillover risks from property crisis? ›

HONG KONG -- China's top four banks collectively reported an increase in total bad loans in 2023, as credit pressure rises in areas closely tied to the troubled property sector.

China's property downturn is eroding the balance sheets of the nation's largest state banks. China's protracted property downturn is eroding the balance sheets of the nation's largest state banks as their bad loans creep up.

At the top of the list is Bank of Qingdao, headquartered in Shandong province, near Liaoning, which suffered a 2,239% jump in bad loans to real estate developers from 2022 to 2023, reaching 521.6 million yuan. Overall, the 31 banks reported a 9.83% rise in bad property debts in 2023, to 291.2 billion yuan.

China's property crisis has impacted the country's biggest banks, increasing non-performing loans. Beijing is urging banks to boost financing for "white list" property developers to help the sector. Despite the crisis, Chinese banks say they have sufficient buffers to manage risks.

Unlike Western banks, which operate more independently, Chinese banks are predominantly state-owned, with the government holding majority ownership of the five largest commercial banks, accounting for over half of the country's banking system assets.

BlueBay, Blackrock, Ashmore and UBS exposed to Evergrande -Morningstar | Reuters.

A Hong Kong court ordered the liquidation of China Evergrande, the world's most indebted property developer. Evergrande has assets of about $245 billion, but owes about $300 billion.

This dataset highlights Pakistan and Angola as having the largest debts to China by a wide margin. Both countries have taken billions in loans from China for various infrastructure and energy projects. Critically, both countries have also struggled to manage their debt burdens.

We believe the risk of systemic default risk, however, is limited given the structure of the property sector's debt and government efforts to help deleverage over past years. The outstanding debt is estimated to be CNY 60 trillion (USD 8.9 trillion), or nearly 50% of 2022 GDP.

China's real problem is corporate debt. The ratio of nonfinancial corporate debt-to-GDP jumped to 116% from 93% in the three years after the stimulus began, and then continued to increase. Now at about 153%, China's corporate debt-to-GDP ratio is one of the highest in the world.

How bad is China's property crisis Country Garden? ›

China's largest developer Country Garden Holdings reported a record 96 percent on-year drop in its first-half earnings on August 30, 2022, in the latest grim illustration of the economic chaos coursing through the country's property sector.

There is no private “freehold” land ownership in China. All urban land in China is owned by the Chinese government and is commonly referred to as “state-owned land.” All rural and suburban land is owned by rural collectives (i.e., local groups of farmers) and is commonly referred to as “collective land.”

At least 23 Chinese builders or related companies have so far received wind-up petitions in Hong Kong from creditors since the beginning of the real estate crisis, according to Bloomberg-compiled data. So far, at least five of them have been ordered to wind up.

A housing bubble can significantly affect a home's value and the equity in real estate. As prices climb, investors may flood the market, and home buyers may secure risky loans. When the bubble bursts, prices plummet and some borrowers may face financial stress or foreclosure.

WeBank (China) (Shenzhen) – The first private bank and Internet bank in China, initiated by Tencent.

In November 2008, China's export growth rate fell sharply to −2.2% from 20% in October. As a whole, China's exports fell by about 17% in 2009 [2], before recovering to positive growth in 2010, as the advanced countries began to grow again (Figure 1).