Chinese banks defy Vanke contagion as S&P forecasts 4% growth

Weak-loan ratios are currently performing better than the agency had previously anticipated.

Chinese banks face a new round of real estate risk, as well as slowing experts and domestic demand.

However, these property-sector risks are not as severe as recent events suggest, according to a report by S&P Global Ratings.

"As is our common refrain, Chinese banks are adequately capitalised, and losses on property loans are manageable," said Ming Tan, credit analyst, S&P Global Ratings.

"Moreover, data from the structured finance market indicates that Chinese mortgages are performing normally, with no big spike in bad loans,” Tan added.

Investors are currently focused on the weak liquidity of China Vanke Co. Ltd. , and potential contagion should more defaults occur, the report said.

Investors also want to know if direct sales of foreclosed properties at steep discounts will result in collateral impairments at banks.

But banks' property-sector strains are easing in S&P’s base case, albeit from a high level, S&P said.

Meanwhile, China's domestic demand is likely to remain subdued and exports should slow in China.

Despite this, China’s real GDP is still headed for growth in 2026, with S&P estimating a 4% rise during the year.

“Meanwhile, given fewer interest rate cuts in 2025 than we expected, we project the banking sector's net interest margin will stabilize at 1.29% in 2027. This would be slightly higher than our previous forecast of 1.27%,” Tan wrote in the report.

“The Chinese economy is performing better than we had expected, as are banks' weak-loan ratios,” S&P wrote.