China-linked risks continue to be prominently featured this earnings season at global banks, though some CEOs have been calling the bottom for the country’s ailing real estate market.

Many global banks have been affected by China’s slowdown, particularly from continued turbulence in its property market. 

In the third quarter, HSBC recorded another $1.1 billion in expected credit losses (ECL), bringing the total in 2023 to $2.4 billion with $800 million related to China’s commercial real estate sector. Rival Standard Chartered was also hit by a $186 million impairment charge related to the same sector, which has been the recipient of $1.1 billion in total from the group in the last two years.  

Calling the Bottom

Some banks are optimistic that China’s real estate market may have seen the worst. 

«For China, I think we could have seen the bottom,» said DBS CEO Piyush Gupta during a results briefing last week. «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.»

«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,» HSBC CEO Noel Quinn said during a separate results briefing. «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.»

Continued Caution

Elsewhere, the tone remained cautious. Standard Chartered CEO Bill Winters noted that the real estate sector has «only barely stabilized» with continued impact on the British bank's profitability.

«The Chinese authorities seem keen to deflate the property level without materially impairing the local financial system, something they have managed well so far, but this policy is not without risk,» Winters said at Standard Chartered's results briefing.

Last month, Country Garden was deemed to have defaulted for the first time after missing the initial deadline and the subsequent 30-day grace period on a $15 million coupon. And in the latest, media outlet Reuters reported that the Chinese government had asked Ping An to rescue the developer in a takeover, though the insurer has repeatedly denied the claims.

Other Concerns

In addition to property pressures, China has also been flagged for other worries including a broader economic slowdown and geopolitical risks. At HSBC, the Asia-focused British lender created four scenarios to calculate ECL and the case for a moderately negative outcome included a China recovery that is weaker than expected, which will in turn impact global growth. 

UBS also noted risks from China's «muted» growth alongside uncertainty in US-China trade relations.

«In 2023, several emerging markets have faced economic, political and market pressures, particularly in light of interest rate hikes and a stronger US dollar,» the Swiss bank said. «Our exposure to emerging market countries is less than 10 percent of our total country exposure, mainly in Asia.»