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Three major Chinese banks that have released earnings results for the first half of the year reported a growing number of non-performing loans (NPLs) to the real estate sector in the first half of the year.
China Construction Bank (CCB), one of the countries’ five biggest lenders, extended 833 billion yuan ($114.6 billion) of loans to the real estate sector, rising by 8.1% from the end of 2022, and its bad-loan exposure to the sector jumped 18% to 39.6 billion yuan versus 33.6 billion yuan at the end of December.
CCB extended 833 billion yuan of loans to the real estate sector, an increase of 8.1% from the end of 2022 as it pledged to support developers.
Bank of Communications reported its NPLs increased by 6.44 billion yuan to 104.96 billion yuan in the first half compared with the end of 2022. Its NPL ratio for loans exposed to the real estate industry rose by 0.59 percentage points to 3.39% druing the period.
“We have noticed rising risks from the property sector … and the situation of controlling the risks from the property sector remains serious,” the bank said. Though the sector is on the way to a gradual recovery, some developers are still in the process of fighting against the risks, it said.
“Amid the sophisticated and challenging international environment, [the] domestic economy is facing new difficulties and challenges,” it added. “The fundamentals sustaining China’s sound economic growth in the long run stay unchanged.”
China Merchants Bank’s NPLs increased by 2.64 billion yuan to 60.64 billion yuan. The bank’s overall NPL ratio dropped by 0.01 percentage points to 0.95%, but the NPL ratio for loans exposed to the property market rose 1.44 percentage points to 5.52%.
“The non-performing-loan ratio of the group in terms of the real estate, water conservancy, environment and public utilities management as well as transportation, storage and postal industries increased due to the risk exposure of heavily-indebted real estate enterprises and individual corporate customers with poor management,” the bank said.
Goldman Sachs has said in a note that the distress in property market in China could trigger 1.9 trillion yuan of credit losses, based on a 10% loss rate derived from recent cracks in the bond market. Banks could shoulder 1.2 trillion yuan or 61% of the losses, while trust firms suffer 28 per cent and insurers 5 per cent, it estimated.