China’s banks face mortgage losses of $350 billion due to lack of confidence in the nation’s property market and authorities struggle to contain deepening turmoil.
The crisis of stalled projects has dented the confidence of hundreds of thousands of homebuyers, which led to mortgage boycotts over more than 90 cities and warnings of wider systemic risks.
“Banks caught in the middle,” said Zhiwu Chen professor of finance at the University of Hong Kong Business School.
Chen warned homebuyers to help the developers to finish the projects, as if they don’t it may end up losing much more.
The Standard and Poor global ratings (S&P) estimated 6.4 percent of mortgages of 2.4 trillion yuan ($356 billion) are at risk, while Deutsche Bank AG is warning that at least seven percent of home loans are vulnerable.
So far, listed banks have reported only 2.1 billion yuan in delinquent mortgages as directly affected by the boycott.
China could limit the fallout and benefit from excess capital and surplus loan provisions at its 10 biggest lenders, which amounts 4.8 trillion yuan ($710 billion), according to a report by Francis Chan and Kristy Hung analysts at Bloomberg Intelligence.
Chinese banks have raised a record amount of capital in the first half from bond sales as they prepare for a potential spike in soured loans.
