Property malaise weighs on China and Korean banks

Most of APAC banks have a stable outlook for 2024, says S&P.

Property sector risks will continue to weigh on Asia Pacific banks in 2024, especially financial institutions in China, Hong Kong, and South Korea.

"Deepening property-sector malaise is the key downside risk for financial institutions in Asia-Pacific in 2024," said S&P Global Ratings credit analyst Gavin Gunning.

Gunning particularly warned of FIs in China, who are more exposed to the country's beleaguered real estate market.

S&P has further raised their forecast of Chinese banks’ nonperforming assets (NPA) to 5.9% for 2024– up from 5% previously.

Two markets– South Korea and Hong Kong– also face property woes. Risks in South Korea remain elevated for non-bank financial institutions who are engaged in financing real estate projects.

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In Hong Kong, high vacancy rates of about 13% in the grade A office sector, coupled with lower property prices, and low sales will continue to test banks' asset quality, S&P warned.

Not all are in trouble, however. Banks in Australia have been upgraded to a stable outlook.

"The stability and resilience in the sector are   due largely to solid capitalization, improved profitability, and still sound asset quality," said Gunning. 

As of Q1, S&P maintains stable outlooks on 95% of banks it rates across 19 APAC banking jurisdictions– higher than the 83% from the last quarter.