Will Property Woes Continue To Weigh On Chinese Megabanks?

This year, Chinese megabanks are facing two big hurdles: the government’s mandate that may force banks to take on more risks in the name of propping up China’s embattled property sector; and declining credit demand and interest rates.

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The Agricultural Bank of China (ABC) and Bank of China (BOC), face lower profits over the next two years, with property risks continuing to weigh on their performance.

ABC, in particular, faces additional risks from a recent mandate by Chinese authorities’ directing local megabanks and larger joint stock companies to inject liquidity into the real estate sector. The government has further mandated the restructuring of lending to local government financing vehicles (LGFVs), and this will also dent its income, noted S&P Global Ratings in a separate report.

One advantage ABC has is its positive prospects for credit growth.