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China’s property lifeline exposes banks to big losses, job cuts

  • Major banks may need to set aside US$89 billion next year for bad real estate debt, dooming them to profits in the low single digits at best, analysts say
  • Lenders are now weighing lower growth targets and job cuts among possible options, bankers say

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An aerial photo taken on November 27, 2023 shows fog over residential buildings in Wuhan, in China’s central Hubei province. Photo: AFP
China’s escalating push to have its banking behemoths backstop struggling property firms is adding to a maelstrom of woes for the US$57 trillion sector.
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Already stung by soaring bad loans and record-low net-interest margins, lenders such as Industrial and Commercial Bank of China (ICBC) may soon be asked for the first time to provide unsecured loans to developers, many of whom are in default or teetering on the brink of collapse.

The risky lifeline threatens to exacerbate an already bleak outlook. ICBC and 10 other major banks may next year need to set aside an additional US$89 billion for bad real estate debt, or 21 per cent of estimated pre-provisions profits in 2024, according to Bloomberg Intelligence. Lenders are now weighing lowering growth targets and cutting jobs among possible options, according to at least a dozen bankers who asked not to be named discussing internal matters.

“The government can’t just ask banks to step up without providing a solution to their issues,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. “Their profits may still look good on the surface, but if you take a deeper dive into their assets and bad loans, things won’t look good for long.”

People walk past an ICBC bank branch in Beijing on June 15, 2023. Photo: AFP
People walk past an ICBC bank branch in Beijing on June 15, 2023. Photo: AFP

China’s banks have been caught between the opposing demands of providing “national service” by supporting the property sector and distressed local governments, and their obligation to run a sound business. Boosting profits has almost become mission impossible for some.

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