Risks loom large for Chinese lenders amid property malaise
Mainland banks with high lending exposure to the real estate sector face asset deterioration as developers struggle to repay loans in downturn
The property downturn on the mainland has put local banks at the greatest risk of asset deterioration, Standard & Poor's Financial Services said in a report yesterday, the second rating agency in a week to point out growing weaknesses in the country's lenders.
A number of regional banks had high exposure to real estate loans at a time when property prices in both the commercial and residential sectors were falling, challenging developers' ability to repay bank loans, S&P said.
Bank exposure to commercial real estate is concentrated among several lenders, led by Bank of East Asia's mainland subsidiary with 30.1 per cent of its total loans going into the sector.
About 21.8 per cent of Beijing Rural Commercial Bank's total lending is to commercial real estate. Bank of Chengdu is close behind, at 20.3 per cent.
Overseas banks such as Hong Kong-based BEA would perform considerably better than their mainland peers because the projects they financed were income-generating and in the biggest cities in the country, S&P said.
Several main cities still have tight commercial vacancy rates. Beijing's was just 4 per cent in the third quarter, according to DTZ.
In comparison, Chongqing had a 38 per cent vacancy rate with developments in the pipeline in the next four years representing nearly 500 per cent of the existing stock, a dangerous level of oversupply.