Outlook about China’s banking sector has dropped to an unprecedented point, reaching the levels that U.S. banks traded at during the 2008 financial crisis.
According to Bloomberg, valuations of the four biggest Chinese banks have reached a record low, about 0.4 of their book value in the Hong Kong stock exchange, as the sector index fell to an 11-year low. That ratio was the same as the level that investors used for the valuation of stock prices of Bank of America and JPMorgan, among others, during the depths of the 2008 market crash.
Experts point out that the Chinese banking industry faces two significant challenges, risks from Beijing’s “zero-COVID” policy and an ongoing property crisis with no signs of easing.
Shen Meng, a director at Beijing-based investment bank Chanson & Co, told Bloomberg, “While we haven’t yet witnessed any signs of a structural deterioration in the domestic economy, it’s likely to remain under pressure in the next few years amid a global recession.”
The banking sector in China has to fulfill its mission from the Chinese regime, like providing substantial financial support to the embattled property sector.
Last month, the People’s Bank of China and the China Banking and Insurance Regulatory Commission reportedly instructed six state-owned banks, or its largest lenders, to provide over $84 billion (600 billion yuan) in real estate funding.
In August, Bloomberg reported that Chinese banks’ nonperforming loans jumped to a record $427 billion in June. Loans in the property sector are higher than in other sectors, with $5.64 trillion in mortgages and $1.74 trillion in loans to property firms.
In late June, thousands of homebuyers started the mortgage boycott of unfinished projects in over 90 cities across China, deepening the crisis in the sector.
Bloomberg also noted that China’s banks might end up losing mortgages of $355 billion as confidence in the country’s real estate market plunges.
As banking is closely tied to the real estate market, Bloomberg raises the question of how severely this crisis affects China’s banking system, worth $56 trillion.