The sentiment of mortgage payments around unfinished buildings in China is dragging down shares of the country’s banks.

According to the Central News Agency (CNA), on July 13, the small and medium-sized banks index and bank index of mainland stocks fell 2.16% and 2.02% respectively. Among them, China Merchants Bank dropped 3.56%, and China Merchants Bank’s Hong Kong shares tumbled nearly 7%.

The number only slid further down in the opening session on the following day, with as many as 42 A-share listed banks having their stocks plummet. China Merchants Bank at one point fell by 6.33%, and Ping An Bank was down by 4.87%. At the close session, they dipped 3.75% and 4.29%, respectively.

Additionally, as Reuters reported, Hong Kong’s financial equities shed 1.5%, while the CSI300 Bank index sank as much as 3.3%, reaching its lowest level since March 2020.

The sell-off is triggered by the rise of homebuyers collectively stopping mortgage payments to stalled property projects.

As CNA reported, Ping An Bank, China Merchants Bank, and Industrial Bank should be the most vulnerable to the movement. This is because they lend more to developers and for residential mortgages than others.

Bloomberg reported from China Real Estate Information Corporation that homebuyers have refused to pay mortgages on at least 100 projects in more than 50 cities as of July 13. Analysts from Jefferies Financial Group Incorporated said it was an increase of 58 projects on July 12 and 28 on July 11.

Betty Wang, a senior economist at Australia & New Zealand Banking Group Limited, warned, “If more home buyers cease payment, the spreading trend will not only threaten the health of the financial system but also create social issues amid the current economic downturn.” 

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