Chinese Banks Anticipate Potential 10% Earnings Decline by 2024 Due to Increasing Bad Debt Ratios

Chinese banks, especially those heavily involved in the property sector, are projected to experience a 10% decrease in earnings by 2024 if bad debt ratios rise due to defaults from lower-quality state-owned developers and private builders. This forecast, presented on Wednesday, comes from analysts at JPMorgan Chase & Co., including Katherine Lei.

The anticipated increase in loan defaults could elevate the loan ratio up to 13%. This trend is reflected in the performance of the CSI 300 Banks Index. Institutions such as Ping An Bank Co. and China Minsheng Banking Corp., which have considerable exposure to the property market, are facing challenges with liquidity and slow progress in debt restructuring amid pressure from the government.

Conversely, some banks seem to be less impacted by these developments. Notable among them are China Merchants Bank Co., Industrial & Commercial Bank of China Ltd., and China Construction Bank Corp. While these banks are part of the same sector, their current circumstances suggest they might be more resilient to the expected rise in bad debt ratios.

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