China bank earnings may fall 10% on bad loans: JPMorgan

CHINESE banks’ earnings may fall as much as 10 per cent in 2024 if their bad debt ratios continue to rise on defaulting developers, according to JPMorgan Chase & Co analysts.

Developers’ nonperforming loan ratio for banks is expected to rise to 7.5 per cent – from 4.5 per cent as at the first half of 2023 – in the firm’s base case scenario, analysts including Katherine Lei wrote in a note on Wednesday (Sep 27).

The ratio could go up to 13 per cent if all privately-owned builders and “low quality” state-owned developers were to go into distressed status, pushing earnings down by 10 per cent, they said.

Chinese lenders’ earnings and margins have declined as the sector bears the brunt of government pressure to shore up growth by cutting rates and extending loans. Developers’ liquidity issues and slow debt restructuring progress have also heightened investor concerns over banks’ financial health, many of which have sizable exposures to the property sector.

The CSI 300 Banks Index has slumped 10 per cent from a May peak, and is trading at just 0.54 times price-to-book ratio, lower than its regional and global peers.

Ping An Bank and China Minsheng Banking have larger developer exposure and may see more pressure to their earnings, the analysts said.

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China Merchants Bank, Industrial & Commercial Bank of China and China Construction Bank may be less vulnerable, according to the note. BLOOMBERG