China Minsheng Banking Corp stock dropped 31% in the past week, marking that the crisis in the real estate industry has spread to the banking sector.
Minsheng Bank was once called the Future of China, and is now the worst-performing bank out of 155 members in Bloomberg World Banks Index.
Replying to questions from Bloomberg, a representative from Minsheng said that there is about 130 billion yuan (US$20.43 billion) in exposure to high-risk developers, accounting for 27% of tier 1 capital, the highest ratio among investment banks. These are loans to struggling property developers in China such as China Evergrande Group, China Fortune Land Development, Sichuan Languang Development, and Tahoe Group.
Of the loans, 29 billion yuan (US$4.5 billion) is lent to Evergrande.
Releasing the 2022 strategic plan, Chairman Gao Yingxin, who joined Minsheng Bank of China in 2020 said that, “Corporate governance will switch from short-sightedness to long-term planning.”
Minsheng Bank will restructure its real estate debt and trim extra costs in human resources.
Minsheng has taken a risky quick investment based on the Chinese regime’s favor. From 2020 to September 2021, Minsheng shares lost 41% due to the impact of defaults in the real estate and property development industry.
In the past, Minsheng Bank made the same mistake when they centralized their loan in the steel industry, which left the bank stumbling in 2014.
Bloomberg said that Minsheng’s case serves as a cautionary note to global financial firms investing billions of dollars in China: When the country’s policymakers decide to change course, seemingly safe bets can suddenly turn sour.