In the most severe crisis scenario, where NPLs in real estate development increase by 15 percentage points and mortgages by 10 percentage points, China’s more than 4,000 banks still have sufficient available capital. With an average capital adequacy ratio dropping to 12.3% if this happens, banks should have enough cushion to support a reasonable amount of losses.
Third, banks have reduced their exposure to home loans since last year, according to JP Morgan.
IMPACT ON ASEAN FOREIGN PROJECTS AND DEVELOPERS
The biggest worry that commercial investors should have is the widening of Evergrande’s problems to the Chinese real estate sector, which could impact Chinese real estate developments abroad and foreign investment in the industry.
Although Evergrande has no known projects in Southeast Asia, other Chinese developers blacklisted by Chinese authorities have spread to Southeast Asia in recent years.
China Fortune Land Development (CFLD), the first major Chinese developer to fall victim to the “three red lines” policy and default on US $ 3.6 billion worth of bonds so far this year, has been involved in many large Indonesian projects since 2015.
Guangzhou R&F Properties, which have housing projects in Malaysia, including Princess Cove luxury condominiums in Johor Bahru, face increasing funding constraints after being downgraded by Moody’s and began divesting assets last year to increase liquidity.
Country Garden, China’s largest real estate developer by sales, reported to have violated one of the three red lines, has two projects in Malaysia and three projects in Indonesia as of June 2020.
In Singapore, four of the republic’s biggest Chinese developers – Logan, QingJian, Kingsford and CSC Land Group – have invested more than S $ 8 billion in land deals, though none have broken the red lines.