Chinese regional banks sell mortgaged assets amid property sector bad loan crisis

Beijing [China], September 7 : Amid the downturn in China's property market, regional banks are increasingly selling off non-performing real estate loans despite government efforts to stimulate the housing sector.
By June 2024, non-performing industrial loans at local banks had reached nearly two billion yuan, a 5 per cent increase from December 2023 and a 78 per cent rise from 2022. On Wednesday, the Bank of Zhengzhou from Henan province announced a deal to sell assets worth 10 billion yuan (approximately USD 1.4 billion) to an asset management firm, Nikkei Asia reported.
These assets include loans to real estate developers, construction projects, and other businesses, whose values have depreciated to about two-thirds of their original 15 billion yuan worth. Consequently, banks across China are compelled to sell non-performing assets to recover losses.
The Nikkei Asia report highlights that 31 Hong Kong-listed Chinese banks had a total of 302.2 billion yuan in bad loans to the real estate sector. This increase represents the first half-year decline since 2021 for many Chinese banks, triggered by the major default of property developer China Evergrande Group.
Notably, smaller and medium-sized banks, which are often located in regions reliant on the real estate sector, have sold significant portions of their property debt.
The worsening real estate conditions are reflected in new-home prices, which fell by 0.6 per cent in July across 70 major cities, marking the 14th consecutive month of decline. The pressure from authorities to boost lending further complicates banks' efforts to improve loan quality.
The net interest margin for all banks reached a record low of 1.54 per cent at the end of June, down by 0.15 points from the end of 2023, according to the National Financial Regulatory Administration.
Jiangxi Bank, located in the southeastern province of Jiangxi, reported a net profit decline of 48 per cent year-over-year, down to 623.25 million yuan. The bank's net interest income fell by 11 per cent due to shrinking margins, while impairment losses surged by 50 per cent to 3.67 billion yuan.
Additionally, Jiangxi Bank's non-performing loans increased by 22 per cent to 8.87 billion yuan by the end of June, with bad loans to the property sector rising nearly fivefold to 1.68 billion yuan in the first half of the year.