Banks in China at risk as real estate crisis deepens

Banks in China at risk as real estate crisis deepens

In the Chinese real estate market, a crisis that has lasted nearly 3 years is causing bad debts of the country’s largest banks to soar. This week, China’s top four state-owned banks, including ICBC, CCB, ABC, and BOC, announced significant increases in bad debts in 2023. In total, bad debt at these four banks rose by 10.4% last year, reaching 1,230 billion yuan (170 billion USD). The banks have made provisions to protect their net profits and are tightening risk controls when lending to real estate firms, but they warn of possible contagion risks.

The total bad debt related to real estate of these four banks in 2023 has risen to 183.9 billion yuan, an increase of 3 billion yuan compared to the previous year. CCB and ABC saw increases of 43.3% and 1.25%, respectively, while ICBC and BOC reported decreases. These rising bad debts are impacting the banking sector and the overall health of the economy.

Chinese officials have implemented various policies to support the struggling real estate market, which has been in crisis since mid-2021 due to efforts to reduce economic leverage. Several real estate companies have gone bankrupt, and others are facing financial difficulties. China Evergrande, once one of the largest real estate companies in China, is currently liquidating assets to settle its substantial debt. The country’s largest private real estate company, Country Garden, is also encountering cash flow problems due to the ongoing crisis.

As the real estate crisis continues to unfold, banks like Merchants Bank and Bank of Communications are bracing for further increases in bad debt as economic slowdowns and falling asset prices exacerbate the situation. These challenges highlight the interconnectedness of the real estate sector with other sectors of the economy, making it crucial for banks and policymakers to closely monitor and address the growing risks to financial stability.

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