China’s property crisis continues to unfold with estimations that local banks could potentially suffer from multi-billion dollar mortgage losses.
Chinese banks face pressure from an ongoing liquidity crisis that has led to mortgage boycotts across the nation. Authorities have responded in turn with grace periods for mortgage payments and the establishment of a fund by the People’s Bank of China (PBOC) to support developers to complete housing projects.
In a worst case scenario, S&P Global Ratings estimates that 6.4 percent of mortgages are at risk – the equivalent of 2.4 trillion yuan ($355.7 billion). And at Deutsche Bank, an even gloomier outlook has been adopted with at least 7 percent of home loans estimated to be at risk.
Thus far, listed banks have reported just 2.1 billion yuan in delinquent mortgages caused by boycotts. According to PBOC data, the country had 39 trillion yuan and 13 trillion yuan of outstanding mortgages and developer loans, respectively, as of end-March.
Meanwhile, China faces additional macro risks such as slowing growth and Covid-related disruptions that have contributed to 2.9 trillion yuan of bad loans, as of end-March, and the figure is expected to reach new records by the end of 2022. The property sector is also estimated to suffer as much as a 33 percent decrease in home sales, according to S&P.
