According to Bloomberg, China’s banks might end up losing mortgages of 355 billion dollars as confidence in the country’s real estate market plunges.
With slowing economic growth and prolonged lockdowns from Covid control measures, there is no sign of recovery in the long-troubled property sector.
The ongoing crisis deepened when hundreds of thousands of homebuyers started the mortgage boycott of unfinished projects in over 90 cities across China.
As banking’s close tie with the real estate market, Bloomberg raises the question of how severe this crisis affects China’s banking system, worth 56 trillion dollars.
The news outlet cited data from Teneo, saying that some 28 of the top 100 real estate developers have either defaulted or negotiated for debt extensions with creditors over the last year.
It also cited data from the People’s Bank of China, reporting that as of March, about 5.7 trillion dollars of outstanding mortgages and 1.9 trillion dollars of loans to developers. So the risk exposure to Chinese banks from the real estate industry is much more than any other industries.
An expert told Bloomberg that the property market is “the ultimate foundation” for China’s financial stability.
Banks with high exposure to real estate loans might be under close scrutiny from Chinese authorities. At the Postal Savings Bank of China and China Construction Bank, mortgages accounted for 34% of total lendings at the end of 2021, above a regulatory cap of 32.5% for the biggest banks.
An international credit rating agency also raised the alarm about China’s property market.
Last week, credit rating agency Standard and Poor’s Global Ratings (S&P) said that China’s real estate sales would decrease by about 30% this year. The drop doubled the firm’s forecast.
And the warning sign is alarming as the director at S&P Global Ratings, Esther Liu, told CNBC that the drop of 30% was worse than the financial global market crisis in 2008, when the fall was about 20%.