Whether the turmoil of unfinished buildings in the mainland will detonate the risks of the financial system continues to attract market attention. Analysts generally believe that the central government still needs to take more action to stabilize the risk, and the domestic bank will inevitably be dragged down by the incident. It is estimated that if the loan repayment buffer period for the unfinished building business is as long as one year, the bank will be reduced. Received 31 billion yuan in interest income.
Short-term bad debt reduction has far-reaching impact
Citigroup issued a report stating that the central government’s “guaranteed handover” and appeasement of buyers of unfinished properties can reduce short-term bad debt pressure on banks, but it has the opportunity to unexpectedly have a more profound impact, such as cracking down on residential sales and weakening domestic housing financing. capacity and local financial capacity. The bank estimates that the amount of mortgage risk related to the mainland will reach 561 billion yuan. Assuming a one-year buffer period for unfinished properties and an average mortgage interest of regarding 5.49%, it means that the mainland bank will have to bear the loss of interest income of 31 billion yuan this time. It is equivalent to regarding 1.2% of the predicted net profit of the banking system in 2023.
According to its stress test results, Citi also pointed out that every time the mainland property prices fell by 15% and the transaction volume of the property market fell by 40%, the non-performing loan ratio related to the mainland housing would increase by 5 percentage points, and it would drag down the bank’s profit by 7%. However, the bank also pointed out that, except for Minsheng Bank (1988) and Shanghai Pudong Development Bank, most of the domestic banks covered by the bank have sufficient profit and excess provision buffer, and believe that the current risk is controllable.
Big bank estimates that the central government will have to intervene heavily
UBS also quoted an expert from the former Policy Research Center of the Ministry of Housing and Urban-Rural Development as saying that the central government may have to take more action to resume work on unfinished buildings, including state-owned enterprises directly taking over the project; ; or the bank recovers the misappropriated pre-sale funds of the project and uses it to pay for the construction costs. Citigroup also pointed out that the central government may introduce a “financial stability protection fund” to prevent systemic risks.
The rating agency Fitch warned that if the central intervention event fails, it may severely dampen confidence in the property market, exacerbate domestic property debt and liquidity pressure, and test financial risks. The non-performing loan ratio for domestic properties in the bank’s index rose from 1.8% at the end of 2020 to 2.7% at the end of last year, while the non-performing loan ratio for residential mortgages remained at 0.3%.
Alibaba leads Hang Seng Index down, weak turnover
Mainland banks rebounded for a day and then weakened once more yesterday. China Construction Bank (939), which has the highest mortgage loan amount, fell 0.8%. Industrial and Commercial Bank of China (1398) and Bank of China (3988) also fell by more than 0.7%. Hong Kong stocks struggled under the 21,000 mark. The Hang Seng Index fell 185 points or 0.9% to end at 20,661 points, led by Alibaba (9988), which lost 2.9%. The main board turnover recorded only 84 billion yuan, the lowest in two and a half months.
Originally published on AM730 https://www.am730.com.hk/Finance/Unfinished Buildings Storm Domestic Banks Pay the Bill-Citi expects to receive 31 billion yuan less in interest/329500
