China banks face 1.5t yuan in losses from property, UBS says

CHINA’S property slump is estimated to cost the nation’s banking system as much as 1.5 trillion yuan (S$291 billion) in losses on loans, bonds and other assets, according to UBS Group.

Such a loss will be “digestible by the banking system as the banks have strong earnings power and high” reserves against non-performing assets, May Yan, the bank’s head of Greater China financials equity research, said in a report. “As such, we don’t expect any banking system crisis at this point.”

Yan estimates that China banks have roughly 88 trillion yuan of exposure to real estate and said that the stabilisation of the sector is “critically important” in preventing them from suffering further losses.

Chinese authorities over the weekend rolled out a sweeping package to help the embattled sector. Regulators issued a 16-point plan to financial firms, with measures that range from addressing a liquidity squeeze at developers to loosening down-payment requirements for homebuyers.

The new guidelines indicate “much stronger and comprehensive central government support” for the property sector, Yan said.

The Swiss bank expects a low rate recovery on unsecured loans and bonds, and added that if stalled property projects aren’t completed, banks could suffer further losses from mortgages. They may also sustain losses from off-balance sheet contingent liabilities.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

At the same time, China’s lenders have been told to step up lending to the property sector, including 400 billion yuan in financing in the final two months of this year.

Moody’s Investors Service said in a note on Wednesday (Nov 16) that banks will ultimately benefit if measures restore confidence of homebuyers and prop up sales, but also issued a warning. “Financial institutions will bear additional credit risks in the short term as they increase financing for the property sector,” the bond rating firm said in the report.

Pessimism about China’s banking sector had reached an unprecedented level, even approaching the depths where US lenders traded during the 2008 financial crisis. A Bloomberg Intelligence index of Chinese banking stocks has jumped 12 per cent so far this month, paring this year’s loss to 13.7 per cent. BLOOMBERG