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Business Maverick: China banks are now valued like US peers at depths of 2008 crash

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Pessimism about China’s banking sector has reached an unprecedented level, even approaching the depths where US lenders traded during the 2008 financial crisis.

“While we haven’t yet witnessed any signs of a structural deterioration in the domestic economy, it’s likely to remain under pressure in the next few years amid a global recession,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. “Banks would be more stressed if they can’t recover the loans by then.”perennial underperformers

But the risk lies in whether the property sector’s woes will spread more broadly in the economy, which could cause loan losses to grow further. The property sector drives about 28% of China’s gross domestic product. That means banks are also paying the price in the markets for their country’s policies. Shares of China’s five state lenders, including ICBC and CCB, indicated an average 26% country risk premium in late October, compared with a single-digit reading implied in US peers, according to data compiled by BI analyst Francis Chan.

 

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