Latest development from Country Garden may affect credit quality of mainland, Hong Kong banks – HSBC Global Research

 

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The brewing debt crisis in China property sector reignited after Country Garden missed the coupon payments of two USD bonds may affect the credit quality of both Chinese mainland and Hong Kong banks, HSBC Global Research said.

The latest development from Country Garden could trigger a new round of internal downgrades and lead to increased provisions, it said, noting that homebuilder does have a 30-day grace period before being regarded as a default.

Country Garden’s other liabilities may result in wide-reaching impacts on customers and suppliers, hampering the recovery sentiment, and given the close ties between the real estate sector and banking sectors, the market is generally keeping a conservative view on the broader financial sector, it said.

The broker preferred banks with undemanding valuation and robust dividend payout capability, such as H-shares of ICBC and Bank of Communications.

BOC Hong Kong was also favored for its relatively smaller exposure to private-run Chinese developers. The broker picked PSBC, Mingsheng Bank and Bank of East Asia as its least preferred options, due to their weaker buffers against credit risks.