China property crisis is rippling through its biggest banks

CHINA’S protracted property downturn is eroding the balance sheets of the nation’s largest state banks as their bad loans creep up.

Five of China’s largest lenders have posted shrinking net interest margins (NIM), while warning of ongoing property sector risks.

Bank of Communications reported Wednesday (Mar 27) that its property bad loan ratio jumped to 5.0 per cent at the end of last year from 2.8 per cent a year earlier. While the balance of its overdue mortgages slipped, the special mention loans for the segment – a leading indicator of soured loans – jumped 23 per cent to 9.9 billion yuan (S$1.9 billion).

Bigger rival Industrial & Commercial Bank of China (ICBC) saw its bad loans from residential mortgages rise 9.6 per cent to 27.8 billion yuan, according to a Wednesday filing. In the corporate loan segment, its property non-performing loan ratio was the highest among all sectors.

On Thursday, China Construction Bank (CCB), Bank of China (BoC) and Agricultural Bank of China (AgBank) all reported sliding margins – a key gauge of profitability – in their annual results.

AgBank and BoC both posted slightly sunnier 3.9 per cent and 2.4 per cent increase respectively in 2023 net profit. CCB said net profit was up by 2.4 per cent last year.

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

AgBank reported a 4.7 per cent increase in soured residential mortgage loans last year, while NPL ratio for the property sector also topped other industries.

Bocom dropped 2.7 per cent and ICBC slid 0.8 per cent in Hong Kong. AgBank ended Thursday trading 0.3 per cent lower right before its results.

The nation’s largest state-owned banks are struggling to maintain growth as Beijing tasked them with duties to help pump up the domestic economy as well as rescue its debt-laden property developers and local governments. The state banks have so far heeded Beijing’s call to lower lending rates and step up financing support for developers.

Bocom said China’s earlier cuts on loan prime rates and reductions on outstanding mortgage rates have hurt margins. The bank underwrote 56.5 per cent more real estate corporate bonds last year to meet the needs of developers, it said in its filing.

ICBC maintained a “stable and orderly” issuance of property loans and boosted financial support for rental housing, according to its statement.

AgriBank said repricing of existing loans such as residential mortgages hurt its margins, according to its filing. The lender cut the interest rates on existing mortgages by an average 73 basis points for more than 7.63 million borrowers last year.

China’s home price declines deepened in February in both new and used home segments, underscoring the challenge for authorities to salvage the beleaguered market.

ICBC has increased efforts to manage risks associated with real estate developers and projects, according to Wang Jingwu, the bank’s vice-president. The non-performing property loan ratio decreased by 0.77 percentage point to 5.37 per cent from the beginning of the year, with sufficient provisions given, he said.

As at the end of 2023, the balance of real estate loans and mortgages at ICBC was more than seven trillion yuan, accounting for more than a quarter of its loan book.

Bocom’s vice-president Yin Jiuyong said the pressure to keep asset quality in check remains “immense” this year as it will take time for home sales and developers’ liquidity conditions to recover. Overall risk from its property exposure is still manageable, he said at an earnings briefing.

The big lenders’ profitability and asset quality are in focus as investors await to gauge their resilience in an economy that’s heavily reliant on bank lending to regain momentum.

Combined profits at China’s commercial banks rose 3.2 per cent to 2.38 trillion yuan last year, the slowest pace since 2020, according to official data. Outstanding bad loans climbed to a record 3.23 trillion yuan. BLOOMBERG, REUTERS