Bad debts galore?

A slew of Chinese banks are reporting half year results, and most have reported lower bad debts ratios. Good news? Wait. Due to an explosion of property related loans in the H1, total bad debts had actually gone up.

China has a prudent down-payment policy, in the range of 20% to 60% (!). As such mortgages are actually prime assets of the banks. The weak link is loans to the property developers. Huaxia Bank, listed in Shanghai and known ninja loan maker, reported a 14.5% increase in bad debts to the developers. Citic Bank’s bad debts to property developers were up 10%. China Minsheng Banking Corp., one of the better managed ones (and perhaps more transparent?), actually surged by 78%!

In terms of bad debts ratios, all banks are still within the comfort zone. But with the tightening policies only kicking in mid-April, one has to wonder whether the bad debts situation will deteriorate, perhaps dramatically, in H2.