China’s real estate crisis is rippling through banks as bad credit ratios rise

By Bloomberg News

The ongoing recession in China’s real estate sector is eroding the balance sheets of the country’s largest state-owned banks, while their bad credit ratios continue to rise.

Bank of Communications Co. reported on Wednesday that the percentage of bad real estate loans had risen to 4.99 percent at the end of last year, compared to 2.8 percent a year earlier. While the mortgage delinquency balance fell, special citations for the segment – ​​a leading indicator of soured loans – rose 23 percent to 9.88 billion yuan ($1.4 billion).

Its larger rival, Industrial & Commercial Bank of China Ltd. saw its bad loans from residential mortgages rise 9.6 percent to 27.8 billion yuan, according to a filing on Wednesday. Although the NPL ratio in the real estate sector fell to 5.37 percent, it was still the highest among all sectors.

Bocom Vice President Yin Jiuyong said the pressure to control asset quality remains “immense” this year as it will take some time for home sales and developers’ liquidity conditions to recover. The overall risk of the real estate exposure is still manageable, he said during an earnings briefing.

Both banks reported modest profit gains as interest margins narrowed.

The results offered insight into how the country’s largest state-owned banks performed last year as Beijing tasked them with pumping up the domestic economy and bailing out debt-laden developers and local governments. At the same time, the slowing economy has put downward pressure on interest rates.

The profitability and asset quality of the major lenders are in focus as investors await a gauge of their resilience in an economy heavily reliant on bank lending to regain momentum. Combined profits at China’s commercial banks rose 3.2 percent to 2.38 trillion yuan last year, the slowest pace since 2020, according to official data. Outstanding bad loans rose to a record 3.23 trillion yuan.

China Construction Bank Corp., Bank of China Ltd. and Agricultural Bank of China Ltd. will announce their annual results on Thursday.

First print: March 28, 2024 | 8:08 am IST