The nearly three-year crisis in China's real estate market is causing bad debt at the country's largest banks to skyrocket.
This week, China's top four state-owned banks, Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Agricultural Bank of China (ABC) and Bank of China (BOC), announced a surge in bad debts in 2023. In total, bad debts at the four banks increased by 10.4% last year to 1.23 trillion yuan ($170 billion).
Banks say bad debts have not affected net profits because they have already set aside provisions. They are also tightening risk controls when lending to real estate companies. However, banks warn that contagion risks are emerging.
The total real estate-related bad debt of these four banks in 2023 was 183.9 billion yuan, up 3 billion yuan from the previous year. CCB and ABC recorded increases of 43.3% and 1.25%, respectively. Meanwhile, ICBC and BOC's real estate bad debt decreased.
An Evergrande housing project in Beijing (China) in September 2023. Photo: Reuters
Zhang Xuguang, deputy director of ABC, said on March 28 that bad debt increased by 10.96% year-on-year to 300 billion yuan, mostly due to loans to real estate companies and local governments.
Two other top Chinese banks have also warned that bad loans will continue to rise, as the slowing economy threatens jobs and falling asset prices hurt buildings held as collateral for banks. Local governments are also increasingly struggling to repay their debts, unable to rely on land sales as a source of revenue.
“We see spillover risks and pressure from the real estate sector,” said Zhu Jiangtao, director of risk management at Merchants Bank, China’s top retail bank.
Merchants Bank saw its real estate bad debt rise nearly 12% last year to 17.2 billion yuan.
Bank of Communications also warned this week that pressure from the real estate sector was continuing. Its bad real estate loans rose 67% last year to 24.4 billion yuan.
China's real estate market has been in crisis since mid-2021, due to policies aimed at reducing leverage in the economy. A series of real estate companies have gone bankrupt. Some are in the process of restructuring. Over the past year, Chinese authorities have launched a series of policies to support this market.
China Evergrande, once China’s second-largest real estate developer, is in the process of liquidating assets to deal with $300 billion in debt. Country Garden, the country’s largest private real estate developer, is also struggling with cash flow.
Ha Thu (according to Nikkei, Reuters)
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