Video Source: YouTube, CNBC TV
By Engen Tham
This month, as the threat of transmission from defaults by the China Evergrande Group increased, some Chinese banks, insurance companies and shadow banks stopped offering new credits to real estate developers and exposed to problematic sectors. I urgently checked.
China’s second-largest real estate developer, with $ 305 billion in debt, has approached Friday’s potential default by missing interest payment deadlines.
Evergrande’s problem puts pressure on peers to access financing, and analysts say China’s financial system could be shocked if real estate developers can’t pay investors, suppliers and lenders I warn you that there is.
“We are concerned that real estate companies will focus their cash flow issues and pose a large risk of bad debts to their banking system,” said Wang Ifen, an analyst at Everbright Securities.
The Bank of China, the fourth largest lender in assets, closely monitors all developer clients to prevent transmission risk, said someone with knowledge of the issue.
“We expect that not only Evergrande, but some of the more leveraged developers are on the verge of liquidity collapse if they go bankrupt,” said one at the Bank of Shanghai.
To calm the market, and in an unusual move, Chinese lenders, including China Minsheng Bank, China Zheshang Bank, and China Everbright Bank, publicly reassured and voluntarily disclosed their exposure to the Evergrande and real estate sectors. I am.
But internally, lenders are struggling to reduce their exposure to “poor real estate assets” and are preparing for a sharp deterioration in the financial position of some developers.
Bankers at China CITIC Bank’s Shanghai branch were wary of what happened to the Evergrande Group, scrutinized developer loans, and began reviewing accounts and repayment terms, people with direct knowledge said. rice field.
CITIC Bank said it was fully prepared for the risks that could be posed by Evergrande, increasing its allowance for doubtful accounts and risk resistance.
Once the best-selling developer in China, Evergrande is now approaching the collapse of an earthquake as debt crackdown ends the bohemian era of infamous debt-building in ghost towns.
After taking precautions to tighten Evergrande’s credit a few years ago, Huarong Asset Management Co has tightened the approval process of other developers in the past few weeks, making it difficult to raise money for projects in low-rise cities. I made it.
“Currently, the fourth tier cities are completely abolished, and the third tier cities are very difficult to get approval, which makes them more demanding than before,” said a Huarong official. I am.
Aeon Life, China’s fifth-largest insurance company, has raised the bar for private developers to raise funds to reduce overall lending to the sector. ratio.
Huarong AMC, AEON Life, did not immediately respond to Reuters’ request for comment.
According to Scope’s research, Chinese banks, insurance companies and fixed income funds have provided large amounts of funding to the real estate sector in recent years, and their exposure is one of the more serious risks facing the financial system.
According to data from the People’s Bank of China, real estate loans account for about 30% of the total loan balance of Chinese financial institutions as of the end of September 2020.
Fitch Ratings reports on Friday that many small mid-sized Chinese banks face “greater asset quality headwinds” as the real estate sector suffers from increased credit stress highlighted by Evergrande. He said it was expected.
Report by Engen Tham in Shanghai and Cheng Leng in Beijing. Edited by Sumeet Chatterjee & Simon Cameron-Moore.