Double Whammy: China's already beleaguered banks may be pushed to play lifebuoy for realty in rags

China’s intensifying efforts to have its major banks support struggling property firms are compounding the challenges facing the $57 trillion sector. Financial institutions like Industrial and Commercial Bank of China Ltd. (ICBC) which is already grappling with surging bad loans and historically low net interest margins, may soon be asked to provide unsecured loans to developers, many of whom are either in default or on the verge of collapse, according to reports. “This risky form of support threatens to worsen an already grim outlook. ICBC and ten other major banks could be required to set aside an additional $89 billion for bad real estate debt in the coming year. This amount represents 21% of the estimated pre-provision profits in 2024,” according to Bloomberg Intelligence. Faced with these challenges, lenders are considering various options, including revising down growth targets and cutting jobs, a dozen bankers who asked not to be named discussing internal matters told Bloomberg. Shen Meng, a director at Beijing-based investment bank Chanson & Co. told Bloomberg “The government can’t just ask banks to step up without providing a solution to their issues,”. “Their profits may still look good on the surface, but if you take a deeper dive into their assets and bad loans, things won’t look good for long,” he added. As Beijing ramps up efforts to revive the debt crisis-hit property sector and bolster a sputtering economy, China’s central bank and financial regulators earlier this month pledged to ensure financing support for the property sector and to work together to resolve local government debt risks. Financial institutions will meet reasonable financing needs of property firms and refrain from withdrawing or cutting off loans to them, the securities regulator had said, after a meeting held by the central bank and financial regulators earlier this month. Recent efforts to stabilise financing for the real estate sector via bank credit, bonds, and equity are gaining traction, the China Securities Regulatory Commission had said. China will promote stable credit expansion to support its economic growth, and financial institutions should work with local governments to resolve debt risks, by extending, swapping or rolling over debt, the regulator added.