China’s property market stabilisation is good news for lenders

But regional banks will still struggle, as recovery of lower-tier cities is still “lagging.”

The expected stabilisation of China’s property market in 2025 is good news for lenders, but regional banks in lower-tier cities will lag in recovery.

Banks that cater to larger and wealthier cities will benefit most, according to S&P Global Ratings.

"A stabilization of the property market in China's larger cities will help the megabanks, most joint-stock banks, and regional banks in those cities," said S&P credit analyst Chris Lee.

"We see challenges for regional banks in lower-tier cities where recovery is lagging,” Lee added.

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, S&P said.

"In our view, the strains from regions with weaker property performance will be manageable for the banking system as a whole," said Lee.

Megabanks 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,” he added.

A property market stabilisation is likely to improve consumer confidence, spreading economic benefits.

S&P also still sees uncertainties, including the potential for trade tensions between China and the US to derail the current momentum.