-
Non-performing loans may rise to 1.5% in property: survey
-
A 20% fall in home prices would put banks under stress
Signs of pressure on China’s property market are
deepening, with a report saying that soured loans from the industry
could put “significant stress” on banks and a state researcher warning
of accumulating risks in a sector that underpins the economy.
The value of bad loans from the real estate industry will increase by at least 20 percent this year, China Orient Asset Management Co.
said in its latest annual survey. The property market will see an
“increasing correction” under heavier restrictions, leading to a rise in
the non-performing loan ratio for the sector to about 1.5 percent,
according to the survey.
The
report added to a chorus of warnings on the dangers mounting in the
property market, which could ripple through the banking system and drag down economic
growth. Authorities have renewed their drive to cool speculation and
have tightened access to credit, increasing “market distortions” and
exposing debt risks, Wang Yiming, deputy director of State Council
Development Research Center, said at a forum Wednesday.
Negative
news has sent Chinese developer shares to an 11-month low, with an
index of 22 property companies falling 2.8 percent on Wednesday,
bringing the decline this week to 5.7 percent. Bonds of developers such
as Country Garden Holdings Co. and China Evergrande Group are trading
near record lows.
About half of the respondents in China Orient’s
annual survey, which interviewed 391 people from commercial banks and
asset management firms, said a property price decline of 20 percent or
more will put banks under significant pressure. Under one-third thought
stress will come with a 30 percent value correction or more.
The
amount of bad loans has been growing “relatively quickly” since 2013,
the report said. While the bad loan ratio in the property industry is
still low, the level is edging towards the economy’s average of 1.75
percent, according to the report.
Real estate-related borrowings may represent more than 56
percent of all outstanding loans this year, despite fewer new loans
flowing into the sector, according to the survey. That’s about the same
level seen in the first three quarters last year.
Stress Poll
“If
home prices fall 20 percent to 30 percent, reacting excessively to the
relentless polices,” or if the market reacts poorly to a property tax,
“industry risks will burst out one by one,” according to the survey
report. “That would break the risk cushion of banks.”
Highlighting
the vulnerabilities of the nation’s smaller lenders, a local ratings
firm downgraded Guiyang Rural Commercial Bank Co., citing a surge in bad
loans that has nearly wiped out
the capital of the rural bank. China Chengxin International Credit
Rating Co. said the lender’s capital adequacy ratio fell below 1 percent
after non-performing loans rose, according to a June 29 statement.
While
Chinese policy makers are trying to introduce some much-needed
financial discipline into the highly indebted property industry, the
worry is that defaults will jump and economic growth will take a hit.
Real estate accounts for about 20 percent of China’s gross domestic
product, when both direct and indirect contributions are considered,
according to Bloomberg Economics.
For the most leveraged listed
developers, net debt-to-equity ratios are as high as 477 percent,
according to data compiled by Bloomberg.
No comments:
Post a Comment