This report does not constitute a rating action.
Key Takeaways
- A likely stabilization of the property market in China's larger cities will help the megabanks, most joint-stock banks, and regional banks in these cities.
- We see challenges for regional banks in lower-tier cities where recovery is lagging.
- The China-U.S. trade conflict could bring additional uncertainties to recovery of the property sector.
A stabilization in China's property market is good news for lenders. Banks that cater to larger and wealthier cities will benefit the most. The coast is not completely clear, however.
S&P Global Ratings anticipates a stabilization in the property market, rather than a roaring recovery (see "China Property Watch: Rebooting An Economic Engine," published on RatingsDirect on May 11, 2025). We see the potential for stabilization to improve consumer confidence, spreading economic benefits. We also still see uncertainties, including the potential for trade tensions between China and the U.S. to derail the current momentum.
The downside risks are larger for regional banks that are more exposed to smaller cities, whose property markets are lagging the trend toward price stabilization. Moreover, these banks still have higher exposures to property.
More Manageable Direct Exposure To Property Sector
While reduced over the past few years, exposures to property are still material for most banks in China. By the end of 2024, China’s commercial bank loans to property developers accounted for about 6.2% of total loans, while residential mortgage loans accounted for about 17.3%. Banks are also indirectly exposed to property via other sectors, such as local government financing vehicles (LGFVs) and construction.
Strains on asset quality will lift as China's property market heals. We expect prices for residences will stabilize this year for the largest or tier-one cities, and some of the next largest (tier two). This will boost the value of property-related collateral in these residential markets, easing banks' provisioning needs.
Chart 1
Megabanks And Joint Stock Banks Are The Most Resilient
In our view, the megabanks and joint stock banks are more resilient due to their greater coverage in tier one and other wealthy lower tier cities for real estate-related exposures, where collateral value held up better than less-developed cities or cities with high level of inventory. In these cities, the stabilization of home prices in the primary market is aiding property developers in recovering their sales revenues and alleviating liquidity pressures. (See appendix for differences among the various bank categories.)
In addition, mega and joint-stock banks' proportion of property development loans in their loan book is also manageable, standing at 4.6% for the megabanks and 6.3% for the joint-stock banks as of end-2024.
We expect Chinese bank residential mortgage loan portfolio to resume low single digit growth in 2025, recovering from a decline of 1.3% in 2024 and 1.6% in 2023. Stabilization of transaction volumes and price help potential homebuyers to regain confidence. The government's various measures to support the housing market, including cutting interest rates, also help homebuyers confidence as well as developers.
Chart 2
Regional Banks Have Higher Direct Exposure To Property
In contrast, regional banks tend to have high geographic concentration and high sector concentration. These concentrations lead to a wider performance gap between regional banks. We anticipate that some of these banks will continue to face higher nonperforming loans (NPLs) and provisioning costs.
The recovery of the property market in lower-tier cities remains uncertain, making city and rural commercial banks in these cities less likely to see noticeable improvement. This is because many of these regional banks have high geographic concentration in their home market. Their property development loan exposure to tier-one cities and the cities outside of their home market are rather limited. These banks have greater loan concentration than the mega and joint-stock banks, with direct property exposures constituting 12.3% of total loans as of end-2024, although this figure has decreased from over 14% prior to 2020.
Chart 3
Even among regional banks, the property recoveries are uneven
The health of the property markets in the home markets of regional banks is an important factor. For example, home prices in Zhengzhou and Guiyang, the capital cities of Henan and Guizhou provinces, respectively, have been hit particularly hard over the past few years. Additionally, the home inventory level in Zhengzhou city was 25 months in 2024, compared with the average of 18 months for tier-two cities.
On the flip side, the home prices movements in Chengdu in Sichuan and Changsha in Hunan province are more resilient than other tier-two cities. The home inventory level in Chengdu city was 13.4 months asof March 2025. This is better than the average for tier-two cities and close to the roughly 10 months of inventory registered among China's top 100 cities during the boom years of 2016-2019.
The asset quality of property development loans will continue to vary for the four major regional banks in the above provinces. For instance, Bank of Zhengzhou, which operates exclusively in Henan province, reported an NPL ratio of 9.55% for property development loans in 2024 and 6.5% in 2023. Bank of Guizhou, which operates solely in Guizhou province, reported a 40.4% and 11.6% NPL ratio for property development loans in 2023 and 2024, respectively. These are significantly higher than our estimated sector average of 4.8% NPL ratio for property development loans in 2024 and 5.0% in 2023.
The Bank of Changsha and Bank of Chengdu, with over 90% of their loans in Hunan and Sichuan provinces, reported much lower NPL ratios for property development loans at 0.64% and 2.15% respectively in 2024. These ratios were also manageable at 0.6% and 3.04% in 2023.
Chart 4
Spillover Effects Will Also Improve Less For Some
Given the close correlation between property values and consumer confidence, any stabilization in home prices should boost household willingness to spend. This could reverse the negative spillover effects in areas where the property markets are healing.
However, we expect the loan quality of consumer loans in lower-tier cities or those cities with higher home inventory level to remain weaker than the national average. In these regions, the unfavorable property outlook, coupled with slower household income growth, would continue to negatively affect the consumer segment.
The average NPL ratio of consumption loans for the major listed banks increased 69 basis points (bps) to 2.39% in 2024. Over the same period, the mortgage NPL ratio rose 32 bps to 0.87%. The household income growth in China decelerated to 5.3% in 2024 from 6.3% in 2023 and 8.9% in 2019, before the pandemic.
In our view, the strains from regions with weaker property performance will be manageable for the banking system as a whole. This is because megabank and joint stock banks together constitute more than 70% of system assets. The greater pain from the smaller banks matters less than the resilience of the big players.
Editor's note
S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).
Appendix
In China's commercial banking sector, there are six megabanks, 12 joint-stock banks, 125 city banks and 3,796 rural institutions (including cooperative banks, credit cooperatives and village and township banks). The six megabanks constitute about 52% of system assets, while joint-stock banks contributed a further 20% at the end of 2024.
Related Research
- Global Credit Conditions Special Update: U.S.-China Tariff De-Escalation Brings Some Temporary Relief, May 15, 2025
- China Property Watch: Rebooting An Economic Engine, May 11, 2025
- Forecast Change: China's Bad Loans Likely To See Larger Tariff-Related Downside, May 6, 2025
- Global Macro Update: Seismic Shift In U.S. Trade Policy Will Slow World Growth, May 1, 2025
- China's Two Sessions: No Surprises In Push To Unlock Growth, March 27, 2025
- Surging Secondary Sales To Stabilize China Property In 2025, Jan. 22, 2025
- LGFV Brief: China's RMB10 Trillion Debt-Swap Scheme Is A Good Start, Nov. 12, 2024
- Banking Industry Country Risk Assessment: China, Aug. 19, 2024
| Primary Contact: | Chris M Lee, Hong Kong 852-2533-3519; chris.mingtai.lee@spglobal.com |
| Secondary Contacts: | Ryan Tsang, CFA, Hong Kong 852-2533-3532; ryan.tsang@spglobal.com |
| Ming Tan, CFA, Singapore 65-6216-1095; ming.tan@spglobal.com |
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