HONG KONG -- China's top four banks collectively reported an increase in total bad loans in 2023, as credit pressure rises in areas closely tied to the troubled property sector.
The "Big Four" state-owned banks, Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB), and Agricultural Bank of China (ABC) reported this week that their total nonperforming loans reached 1.23 trillion yuan ($170 billion) in 2023, up 10.4% from 1.117 trillion yuan in 2022.
HONG KONG -- China's top four banks collectively reported an increase in total bad loans in 2023, as credit pressure rises in areas closely tied to the troubled property sector.
China's property downturn is eroding the balance sheets of the nation's largest state banks. China's protracted property downturn is eroding the balance sheets of the nation's largest state banks as their bad loans creep up.
China's property crisis has impacted the country's biggest banks, increasing non-performing loans. Beijing is urging banks to boost financing for "white list" property developers to help the sector. Despite the crisis, Chinese banks say they have sufficient buffers to manage risks.
However, banks in China and other major Asian economies are generally funded by a healthier mix of depositors, from households to large and small enterprises across different sectors. Typically, it's loans rather than bond investments that account for the bulk of their assets.
A Hong Kong court ordered the liquidation of China Evergrande, the world's most indebted property developer. Evergrande has assets of about $245 billion, but owes about $300 billion.
In 2021, other central and local government regulations, including mortgage lending limits, rent caps in big cities, and land auction cancellations, caused a slowdown in the property sector, as authorities attempted to control rising house prices.
China is in the midst of a profound economic crisis. Growth rates are flagging as an unsustainable mountain of debt piles up; China's debt-to-GDP ratio reached a record 288% in 2023.
China's largest developer Country Garden Holdings reported a record 96 percent on-year drop in its first-half earnings on August 30, 2022, in the latest grim illustration of the economic chaos coursing through the country's property sector.
China's formally recognized banks certainly appear to be safe and not to pose an imminent danger to anyone else. Real-estate lending accounts for nearly a quarter of banks' loan books, and real-estate-related lending to local governments or construction-dependent heavy industries add to the risk.
The People's Bank of China (officially PBC and unofficially PBOC) is the central bank of the People's Republic of China. It is responsible for carrying out monetary policy as determined by the People's Bank Law and the Commercial Bank Law.
The Fall of Real Estate Giants: Evergrande and Country Garden. The collapse of Evergrande, once the world's most valuable real estate company, marked the beginning of China's real estate crisis. Founded in 1996, Evergrande targeted the upper-middle class, but excessive borrowing and overbuilding led to its downfall.
Vanke, which had around $97 billion in annual sales at its peak, has managed so far to avoid a default, but it is under pressure. One of its dollar bonds, which matures in 2027, was bid at around 48 cents on the dollar on Thursday, according to Tradeweb.
A housing bubble can significantly affect a home's value and the equity in real estate. As prices climb, investors may flood the market, and home buyers may secure risky loans. When the bubble bursts, prices plummet and some borrowers may face financial stress or foreclosure.
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