China watchers are starting to put a price tag on what any collapse in the nation’s red-hot property market could cost banks.
A drop of 30 percent in housing prices could cause 4 percent of total loans worth 4.1 trillion yuan ($615 billion) to sour, according to DBS Vickers Hong Kong Ltd. Commerzbank AG said such a drop could trigger 4 trillion yuan in delinquencies. Pacific Investment Management Co. expects the non-performing loan ratio to peak at 6 percent in the next few years from the current 1.75 percent, amid risks from the property sector.
While bank losses under those scenarios would be a far cry from the $1.3 trillion in the U.S. after the 2008 financial crisis, economists are increasingly anticipating a banking system bailout that could rock the stock market and push up government borrowing costs. Ma Jun, the central bank’s chief economist, said in an interview with China Business Network last month that the property "bubble" needed to be curbed after home prices rose 60 percent in the southern city of Shenzhen in a year.
