John Bolton on the ‘economic difficulties’ facing China
China’s big banks helping struggling property firms is causing more problems for the £45trillion sector.
Banks like Industrial and Commercial Bank of China (ICBC) might have to give risky loans to developers facing collapse, adding to their existing issues with bad loans and low profits.
This risky support could make things worse. ICBC and other major banks might need to set aside an extra £70billion for bad real estate debt in 2024, according to Bloomberg Intelligence.
To deal with this, banks are thinking about lowering growth targets and cutting jobs.
Analysts are worried that the government is asking banks to help without fixing the main issues. Banks are stuck between helping the property sector and keeping their own business healthy.
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Beijing is putting more pressure on banks to fix the housing crisis. Regulators are making a list of firms that banks should support and might allow lenders to give risky loans to developers.
These demands, along with orders to help with local government debt, are hurting bank finances.
The central bank is pushing banks to lower interest rates and coordinate lending to avoid problems. But with falling profits and rising bad loans, major state banks’ shares are at record-low values.
Chinese state-run banks get a lot of government directions on lending, which can be confusing. Not following the rules can lead to punishment.
“The government can’t just ask banks to step up without providing a solution to their issues,” Shen Meng, a director at Beijing-based investment bank Chanson & Co told the South China Morning Post, which claimed lenders are “teetering on the brink of collapse”.
Meng added: “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.”
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While the government is trying to help banks, like lowering deposit rates, it might not be enough. Experts think the problems will continue into 2024, limiting profit growth.
Goldman Sachs warns that China’s plan for banks to help builders could make bad loans worse. JPMorgan Chase & Co says giving risky loans is a bad idea.
Analysts think banks might push back, like they did in the third quarter by lending less to property firms despite government pressure.
Regulators might let bankers off the hook for bad loans, but analysts say the government wants to avoid big problems with major banks, as they are crucial for government income.
“The government wouldn’t want material volatility in the big lenders’ operations, and it’s unlikely that banks will be asked to save the property sector or LGFVs at any cost,” Vivian Xue, director of financial institutions at Fitch Ratings also told the SCMP.
“After all, the big banks are all owned by the central government and they’re a key source of fiscal income.”
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