on mortgage payments and a central bank-backed fund to lend financial support to developers. Either way, banks are expected to play an active role in a concerted state bailout.The exposure of Chinese banks to the property sector tops that of any other industry.
To limit the fallout, China could tap into the excess capital and surplus loan provisions at its 10 biggest lenders, which amounts to a combined 4.8 trillion yuan, according to a report by Francis Chan and Kristy Hung, analysts at Bloomberg Intelligence. Bad loans at lenders, which amounted to 2.9 trillion yuan at the end of March, are poised to reach new records and further strain an economy that’s expanding at theWhile China’s total debt-to-GDP is forecast to climb to a fresh record this year, consumers have been reluctant to take on more leverage. That has ignited a debate over the risk of China falling into a “balance sheet recession,” with households and companies cutting back on spending and investing.
S&P Global forecast home sales could drop as much as 33% this year amid the mortgage boycott, further squeezing the liquidity of distressed developers and leading to more defaults. Some 28 of the top 100 developers by sales have either defaulted on bonds or negotiated debt extensions with creditors over the past year, according to Teneo.
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