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Cao Li

China’s commercial real estate stress will force some Hong Kong banks with significant exposure to the sector to set aside additional reserves for potentially higher non-performing loans, which could weigh on their second-half 2025 earnings, according to Citi.
In a report on Tuesday, Citi Research said Bank of China (Hong Kong) (BOCHK), the Hong Kong subsidiary of state-owned Bank of China, and Bank of East Asia (BEA) had the highest exposure to China’s commercial real estate, which is under relentless pressure.
BOCHK’s exposure to China’s commercial real estate stood at HK$77.6 billion (US$9.9 billion) at the end of last year, accounting for 4.5 per cent of its total loans, the highest among the Hong Kong banks covered by Citi. BEA’s exposure stood at HK$29 billion, 5.4 per cent of its total loans.
BOCHK’s profit for the second half of 2025 was forecast at HK$16.6 billion, broadly in line with consensus, Citi said. But its credit costs would be about 11 per cent higher than consensus due to higher impairment charges linked to China commercial real estate exposure, it added.
Meanwhile, BEA’s credit costs were likely to be about 2 per cent higher than consensus.

“China commercial real estate related risks have risen for BOCHK as China Vanke announced [an extension to its] bond maturity, suggesting rising default risks,” Citi said.
Citi noted 86 per cent of BOCHK’s China real estate loans were to state-owned enterprises (SOEs) or quasi-SOEs, such as Vanke.
“While Vanke recently received approval for payment deferral with additional support from Shenzhen Metro, credit cost uncertainties could remain amid a prolonged China property market [downturn],” Citi said. Shenzhen Metro is Vanke’s biggest shareholder with a 27 per cent stake.
Citi said it expected BoCHK’s credit costs would remain high in the fourth quarter of 2025 and 2026, before improving in 2027.
Looking ahead, Vanke-related impairments could remain a near-term drag and Hong Kong commercial property risks were not fully resolved, Citi said, adding it expected banks’ credit costs to stay elevated this year.
The bank added that credit costs could improve in 2027 as Hong Kong’s economy and property market stabilise, “though we still model banks’ credit cost to stay above the historical average level in a higher-rate environment”.
Citi said Hong Kong banks’ overall results should hold up in the second half of 2025, as lending margins improved, but losses tied to China property could hurt profits and make buy-backs unlikely.
Vanke is the latest developer to come under pressure as China’s property sector enters its sixth year of downturn. The state-backed firm began negotiating with creditors late last year to defer debt repayments, raising concerns about its ability to meet coming payments and the knock-on impact on banks’ bad loans and credit costs.
In a report published in early January, Barclays said Vanke’s offshore creditors could face near-total losses in a worst-case scenario. Later that month, Shenzhen Metro said it would lend up to 2.36 billion yuan (US$341 million) to the developer.
On January 30, Vanke reported a record loss of 82 billion yuan for 2025, around 1.7 times its loss in 2024.
Separately, JPMorgan said in a report published on Tuesday that a deterioration in China’s commercial real estate asset quality in the second half of 2025 “should not have a material impact on most banks”, because the exposure was down to low single digits of total loans at most banks.
However, it noted that BOCHK and BEA “still have relatively higher exposure to either a single large developer or the sector as a whole”.


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Business

Banking & Finance

Bank of China (Hong Kong) and Bank of East Asia could be affected the most as they have the highest exposure to China’s property sector


Bank of China (Hong Kong) and Bank of East Asia could be affected the most as they have the highest exposure to China’s property sector.


China’s property woes likely to hurt some Hong Kong banks’ 2025 earnings: Citi

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Bank of China (Hong Kong) and Bank of East Asia could be affected the most as they have the highest exposure to China’s property sector

Bank of China (Hong Kong) and Bank of East Asia could be affected the most as they have the highest exposure to China’s property sector