In recent years, the Chinese real estate market has been facing a severe crisis that has led to an increase in bad debts for the country’s largest banks. Despite banks making provisions for bad debts, they are tightening their risk control measures when lending to real estate firms in order to prevent further losses. However, banks have warned of emerging contagion risks that could affect the financial stability of these institutions.
In 2023, the total bad debt for China’s four largest banks – Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Agricultural Bank of China (ABC), and Bank of China (BOC) – increased by 10.4% to 1,230 billion yuan (170 billion USD). Of this total, bad debts related to real estate accounted for 183.9 billion yuan, which was an increase of 3 billion yuan compared to the previous year.
While CCB and ABC saw significant increases in their real estate bad debts, ICBC and BOC reported a decrease in bad debts. However, this trend is likely to continue as the economic slowdown and falling asset prices in the real estate sector continue to cause bad debts to rise.
The ongoing crisis in the Chinese real estate market is exacerbating the problem. Many companies have gone bankrupt or are struggling with restructuring efforts. To support the industry over the past year, Chinese officials have implemented a series of policies aimed at boosting demand for housing and stimulating investment.
Despite these efforts, however, many major real estate companies like Country Garden are still facing financial difficulties. The situation is particularly challenging for smaller developers who lack access to credit lines or other forms of financing.
Overall, the Chinese banking sector is facing significant challenges due to the ongoing crisis in the real estate market. Bad debts related to this sector continue to rise, posing risks not only for these specific banks but also for broader financial stability in China as a whole.
