HSBC Holdings plc chief executive officer Noel Quinn said China’s commercial property sector had reached a trough, but investors shouldn’t expect a swift reversal following the recent downturn.
“The commercial real estate market in China has had a huge policy correction, and I think we are at the bottom of the market,” Quinn said on Bloomberg TV from London on Monday. “But it will take quite a while for that market to recover and regain momentum. So, I am not expecting a massive reversal in that sector in the next 12 months or so, but I do expect it to be a gradual improvement from where we are.”
Investors are concerned about banks’ exposure to China’s property market, amid developer defaults and relatively sluggish economic growth. Standard Chartered plc shares plunged last week after profit missed estimates due to charges related to investments in China, and as chief financial officer Andy Halford said it remains difficult to call the bottom for commercial real estate.
Of US$1.1 billion (RM5.24 billion) expected credit loss charges announced in HSBC’s third-quarter earnings on Monday, about US$500 million was related to the commercial real estate sector in mainland China. HSBC has charged a total of US$800 million against the China property portfolio this year.
“There remains the potential for a further deterioration in credit conditions during the last three months of the year, given the continued uncertainty around liquidity support for state-owned enterprises and ongoing weakness in property market fundamentals,” HSBC said in a statement. “Borrowers are therefore subject to a high degree of performance uncertainty and offshore refinancing risk.”
The firm pared its reliance on the sector, with its total mainland China commercial real estate exposure at US$13.6 billion, down roughly US$600 million from the second quarter, which it said was “mainly due to write-offs”.
“I’m encouraged by some of the policy measures that were announced recently,” Quinn said on Bloomberg TV. “They will take time to have effect, so I’m not expecting a rapid turnaround, but I do think we are at the bottom of the market, and will now have to have a slow recovery.”