The Chinese government's pledge to ramp up support for its slowing economy at a key conference will boost the nation's banks, which face an unfriendly operating environment in 2023.

Leaders at the Central Economic Work Conference that ended Dec. 16 urged government agencies to improve collaboration and step up macro policy support, hinting at more business-friendly policies and further support for the property sector. Any further liquidity easing following the government's vow will help banks' business and buy time for companies that may be at risk of loan default, according to analysts.

"Monetary policy is likely to remain accommodative in 2023," said Ting Lu, Economist at Nomura, in a research note dated Dec. 19, as "the authorities would provide reasonable and sufficient liquidity to support the real economy, especially small business, technology innovation and green development."

The world's second-largest economy is poised to miss the 5.5% growth target for 2022, announced in March, after gross domestic product expanded 4.8%, 0.4% and 3.9% in the first three quarters on a year-over-year basis. As the central bank eased monetary policy to support economic growth, bank margins were pressured. Industrial and Commercial Bank of China Ltd., China Construction Bank Corp. and Agricultural Bank of China Ltd., the three biggest Chinese lenders by assets, reported a decline in net interest margin, or NIM, in the third quarter of 2022. ICBC's NIM declined to 1.98% from 2.03% in the first half.

Supportive macro tone

The event set a supportive macro policy tone, announcing continued support for the troubled property sector. It also prioritized consumption by naming electronic vehicles and elder-care services as new growth engines.

The conference signaled "a clear easing bias to stabilize the property market," said Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank Research via email.

The authorities will stay prudent and take "accurate and effective" measures to support the economy, Wang said. "We see additional reserve requirement ratio cuts, no policy rate cut but potentially lowering of Loan Prime Rate by 5 to 10 basis points, and robust but slightly slower credit growth."

Further measures to support the housing sector could include mortgage rates and down payment requirements being pushed lower, relaxation of restrictions on purchasing homes, and more credit support for stalled projects, Wang said.

Supporting real estate developers could be tricky as a yearslong boom in the property sector sowed the seeds of piling inventories of unsold residential units and a collapse in demand.

"The government's intention is not to let the real estate sector increase financial risk, but too much policy support for developer's financing could end up with another round of over-leverage," said Iris Pang, chief economist of Greater China at ING.