China’s Property Market Struggles: Banks Sell Bad Loans Amid Decline
China’s property market is facing a downturn, leading regional banks to sell non-performing real estate loans despite government efforts to stimulate the housing sector. By June 2024, bad industrial loans at local banks reached nearly two billion yuan, a 5% increase from December 2023 and a 78% rise from 2022.
On Wednesday, the Bank of Zhengzhou from Henan province announced a deal to sell assets worth 10 billion yuan (approximately USD 1.4 billion) to an asset management firm. These assets include loans to real estate developers, construction projects, and other businesses, whose values have depreciated to about two-thirds of their original 15 billion yuan worth.
Consequently, banks across China are compelled to sell non-performing assets to recover losses. A report highlights that 31 Hong Kong-listed Chinese banks had a total of 302.2 billion yuan in bad loans to the real estate sector. This increase represents the first half-year decline since 2021 for many Chinese banks, triggered by the major default of property developer China Evergrande Group.
Notably, smaller and medium-sized banks, which are often located in regions reliant on the real estate sector, have sold significant portions of their property debt. The worsening real estate conditions are reflected in new-home prices, which fell by 0.6% in July across 70 major cities, marking the 14th consecutive month of decline.
The pressure from authorities to boost lending further complicates banks’ efforts to improve loan quality. The net interest margin for all banks reached a record low of 1.54% at the end of June, down by 0.15 points from the end of 2023, according to the National Financial Regulatory Administration.
Jiangxi Bank, located in the southeastern province of Jiangxi, reported a net profit decline of 48% year-over-year, down to 623.25 million yuan. The bank’s net interest income fell by 11% due to shrinking margins, while impairment losses surged by 50% to 3.67 billion yuan. Additionally, Jiangxi Bank’s non-performing loans increased by 22% to 8.87 billion yuan by the end of June, with bad loans to the property sector rising nearly fivefold to 1.68 billion yuan in the first half of the year.
Doubts Revealed
Property Market -: A property market is where people buy and sell buildings and land. In China, this market is having problems right now.
Non-performing loans -: These are loans that people or companies are not able to pay back. Banks try to sell these loans to get some money back.
Yuan -: Yuan is the money used in China, just like we use Rupees in India.
Bank of Zhengzhou -: This is a bank in China, similar to how we have banks like SBI or HDFC in India.
Asset management firm -: These are companies that help manage and invest money for other people or businesses.
New-home prices -: This means the cost of buying a new house. In China, these prices have been going down for over a year.
Jiangxi Bank -: Another bank in China, which is also facing problems because people are not paying back their loans.
Net profit -: This is the money a company makes after paying all its expenses. Jiangxi Bank’s net profit has gone down a lot.
