Chinese banks suffered some of the steepest drops in market capitalization among their Asia-Pacific peers in the quarter ended Sept. 30, as defaults in the troubled real estate sector and prolonged COVID-19 restrictions weighed heavily on their shares.
All eight Chinese banks on S&P Global Market Intelligence's list of the 20 largest Asia-Pacific banks by market capitalization logged double-digit percentage declines in their stock prices during the third quarter. Postal Savings Bank of China Co. Ltd. led the pack with a 22.83% decline. China Merchants Bank Co. Ltd. followed with a 21.39% decline, the data shows.
Still, Chinese banks retained their rankings in the quarter, with Industrial and Commercial Bank of China Ltd. and China Construction Bank Corp. keeping the top two slots with market caps of $205.54 billion and $146.49 billion, respectively.
The ongoing crisis in the real estate sector has been a drag on the country's banks, according to Antoine Bracq, executive director and global head of investment advisory at Singapore-based global investment institution Lighthouse Canton.
"The ripple effects of Chinese developers defaulting one after another is impacting the real economy as well as local governments, which heavily relies on land selling to balance their budgets," Bracq said. The prolonged COVID-19 restrictions make things worse for Chinese banks because such restrictive measures exacerbate the economic slowdown, Bracq said, adding: "This toxic cocktail is unfavorable for Chinese banks and explain why they have lost a significant amount of market capitalization so far this year."
Citing COVID-19 outbreaks and the property market crisis, the International Monetary Fund on Oct. 11 lowered China's gross domestic product growth forecast to 3.2%, the lowest growth in more than four decades, excluding the initial COVID-19 crisis in 2020. The People's Bank of China has been easing monetary policy to revive credit demand and spark economic growth. In contrast, other major central banks, including the U.S. Federal Reserve, have been raising rates to control rising inflation and risks associated with the ongoing Russia-Ukraine war.
Strong metrics
Despite the weakness in share prices, Bracq advised investors to stay patient as Chinese banks will rebound once market sentiment improves.
Other analysts are upbeat about the outlook for Chinese banks given their strong financial metrics.
"We remain comfortable with the operating performance of the China banks as they are positioned to reap the benefits of robust impairment allowance and decent capital adequacy," said Lawrence Chen, a Hong Kong-based banking analyst at CCB International Securities. "Increasingly apparent support from the Chinese government to the property market in the form of bank loans, lowered mortgage rates ... offers the prospect of a much-needed boost to share prices."
Mitsubishi UFJ Financial Group Inc., the only Japanese bank on the list, logged an 11.27% drop in its market cap to $55.95 billion, falling to 14th place from 9th in the second quarter.
Winners
Australian, Indian and Southeast Asian banks recorded increases in their market caps in the third quarter, with India's ICICI Bank Ltd. leading the pack with a 22.09% increase, followed by PT Bank Central Asia Tbk with a 17.93% increase.
Three other Indian banks made it to the list in the quarter, as the country's banking sector emerged from its bad-loan crisis.
Australia's major banks also bounced back from their slump in the prior quarter, with Australia and New Zealand Banking Group Ltd. logging an 11.36% quarter-over-quarter rise.
Kotak Mahindra Bank Ltd. entered the list at the 18th spot with a market cap of $44.44 billion, while PT Bank Rakyat Indonesia (Persero) Tbk reentered at the 17th spot with a market cap of $44.68 billion, Market Intelligence data shows.