The recent deceleration in China’s economic growth has reverberated across global banks, with a particular focus on the persistent upheaval in the country’s real estate market.
In the third quarter, HSBC reported an additional $1.1 billion in expected credit losses (ECL), pushing the 2023 total to $2.4 billion, with $800 million attributed to China’s commercial real estate sector. Akin to its counterpart, Standard Chartered faced a $186 million impairment charge linked to the same sector, bringing the total contributions to this segment by the group to $1.1 billion over the past two years.
Despite the challenges, some banks express optimism that the worst might be over for China’s real estate market. Piyush Gupta, CEO of DBS, remarked, “For China, I think we could have seen the bottom. The measures since July should put a floor under the property market. Nevertheless, the recovery will be a little patchy, but I do not think it will get much worse.”
HSBC’s CEO, Noel Quinn, shared a similar sentiment during a separate results briefing, stating, “I think we’re at the bottom of that [policy] correction phase, and we’re now in a gradual reclimb back out, with possible policy tweaks taking place. Equally I don’t see a big swing back into positive policy territory for commercial real estate. I see it as fine-tuning from this low base.”
However, cautionary notes were struck elsewhere. Bill Winters, CEO of Standard Chartered, pointed out that the real estate sector has “only barely stabilized,” with continued repercussions on the bank’s profitability. Winters highlighted the Chinese authorities’ efforts to deflate property values without significantly impairing the local financial system, acknowledging the risks inherent in this policy.
Recent developments, such as Country Garden’s first-time default after missing payment deadlines on a $15 million coupon, and reports of the Chinese government urging Ping An to rescue the developer through a takeover, add further complexity to the situation. Notably, Ping An has consistently denied these claims.
Looking beyond real estate concerns, China faces broader economic slowdowns and geopolitical risks. HSBC, an Asia-focused British lender, factored in these uncertainties when calculating ECL, with one scenario considering a moderately negative outcome hinging on a weaker-than-expected recovery in China that could, in turn, impact global growth.
In summary, the intricacies of China’s economic landscape, particularly the challenges in its real estate sector, have left global banks navigating a landscape marked by cautious optimism and a recognition of potential risks.
