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
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.”
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.
