Beijing or Shanghai
Five of China’s top banks saw a rise in bad loans related to real estate in the first half of the year, even though they made small profits against the backdrop of an economic downturn.
Due to widespread COVID-19 lockdowns and a falling real estate market, the world’s second-largest economy almost went into recession in the second quarter. This had a big effect on consumer and business confidence.This led to the first-half statistics.
China Construction Bank (OTC: CICHF) Corp. (CCB) and Bank of China Ltd. (BoC) reported 68% and 20% growth in nonperforming real estate loans during the first half of this year, respectively, in filings with the exchanges on Tuesday.
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During the same time period, Industrial and Commercial Bank of China Ltd (ICBC), which has the most assets of any commercial lender in the world, saw bad debt in the real estate sector rise by 15%.
ICBC’s vice president Wang Jingwu said at a press conference after the results were released, “Because of the pandemic and the economic downturn, the current operating environment for banks is hard and bleak.”
“The pandemic and economic cycle have a big effect on some industries and consumers, making it hard for them to work,” Wang said next.
This opinion was mirrored by CCB President Zhang Jinliang on Wednesday during a news conference following the release of the results.
This year, the Chinese economy faces a significant amount of negative pressure, according to Zhang.
ICBC, BoC, and CCB are the most recent banks to say that the number of nonperforming loans in the real estate industry has gone up. This comes after a rough first half of the year, when rising developer defaults stopped housing projects and led to boycotts of mortgages.
The Bank of Communications (BoCom) and Agricultural Bank of China (OTC:ACGBF) Ltd. (AgBank) issued similar cautionary statements on loan defaults.
Harry Hu, senior director at S&P Global Ratings, predicts that the non-performing ratio of Chinese banks in the property development industry will increase to between 5.5% and 5.6% by the end of the year, up from 2.6% at the end of 2021.
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The state council and regulators are pressuring the bank to enhance lending to the real estate industry, said BOC chief Liu Jin during a separate news briefing on Wednesday.
Mortgage defaults are “not only a social stability issue, but also a possible financial stability issue,” according to Hu, because mortgages are often high-quality bank assets.
The end of July saw 1.14 billion yuan in delinquent mortgages at CCB, according to Li Yun, vice president of the bank.
And economists warn that smaller institutions are more vulnerable to property market fluctuations.
“Regional banks concentrating in these local markets are more sensitive to the shock of a larger-than-average decrease in home values,” said Moody’s Banking Analyst Nicholas Zhu.
This could make the loan-to-value ratios of regional banks’ property loan portfolios go up. This would make it harder for banks to use property loans as collateral and raise the risk of their assets.
Despite problematic loans in the real estate industry, only Bank of Canada reported a minor increase in its total NPL percentage, while bad debt in other areas slowed or remained stable for the other four institutions.
And for the first half of the year, all five had net profit gains that ranged from 4.9% to 6.3% over the same time last year.
BoCom, AgBank, ICBC, and CCB all reported declining net interest margins, a crucial measure of bank profitability, and banks and experts anticipate that NIM will continue to decline.
Hu predicts that the profitability of Chinese banks will continue to decline as a result of this year’s dropping LPR, which has depressed banks’ interest revenue.
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(1 US dollar = 6.9100 Chinese yuan renminbi)
China’s top banks are suffering from the property sector turmoil.
