China banks to forfeit US$4.6b on mortgage break, Citi says
CHINESE banks would forfeit US$4.6 billion of interest income from mortgages under a proposal to give home buyers in stalled projects a temporary payment holiday, according to estimates from Citigroup.
The figure amounts to about 1.2 per cent of estimated net profit in the banking system for 2023, assuming 561 billion yuan (S$115.8 billion) of home loans would be at risk if Beijing signs off on the plan, analysts led by Judy Zhang wrote in a research report Tuesday (Jul 19). Credit risk from the latest round of stress in the property sector is manageable for most banks, the analysts estimated.
The yet-to-be-finalised plan, reported by Bloomberg on Monday, is targeted at bringing relief to hundreds of thousands of buyers of stalled Chinese housing developments, many of whom have joined a payments boycott that’s hit at least 230 projects across 80 cities. The proposed grace period is part of a broader push by the authorities to stabilise the property market, which includes urging local governments and banks to plug some funding gaps for developers, people familiar with the matter have said.
The moves by regulators will lower short-term risks for the banking sector, though the snowballing payments boycott may have longer-term implications such as reducing risk appetite among banks, damping homebuyer sentiment and denting the fiscal health of local governments, according to the Citi analysts.
While government efforts “may provide short-term relief on mortgage asset quality concern, we expect the mortgage-payment boycott may have far-reaching ‘unintended’ impacts,” they wrote.
Shares of Chinese banks, which rose Monday on news that the government asked banks to keep lending to developers, were little changed Tuesday. The CSI 300 Bank Index has dropped 9 per cent so far this month. A gauge of property shares fell 0.7 per cent Tuesday.
The mortgage boycotts flared up last week in the latest threat to a real estate industry already battered by defaults among some of China’s biggest builders.
One unintended consequence of the mortgage protests could be that consumers become less willing to buy homes, curbing developers’ incentives to start new projects, the analysts wrote. This would then hit municipal revenue from land sales.
Every 10 percentage point slowdown in real estate investment growth could translate to a 17 per cent fall in Chinese banks’ earnings for the 2022 financial year, according to Citigroup. BLOOMBERG
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