China’s weakened property market could hit banks: S&P

The slump that hit China’s property market this year could hit the country’s banks according to ratings agency Standard & Poor’s, in the latest warning to the world’s second largest economy.

While the housing market in China has started to see some recovery of late, with data released at the start of the month showing house prices rose at their fastest pace in 18 months, weakness seen earlier in the year could have “negative knock-on effects” for domestic Chinese lenders, S&P warned.

“We continue to monitor the impact of Chinese developments on regional credit quality. We believe that the weakening Chinese property market could have an intermediate negative impact on the Chinese financial institutions sector,” the ratings agency warned in its annual outlook on banks, released late Tuesday.

S&P also mentioned its concerns over the recent severe sell-off seen in equities, but said the issue appeared to be contained, for now.

“We believe that contagion risks from the sharp fall in China’s equity market to the rest of the Chinese financial system remain manageable, at least for the time being.”

“Contagion risks for China may increase significantly, however, if the correction in the equity market turns into a collapse, in our view. Chinese securities firms, and possibly other types of nonbank financial institutions that may have sizable equity exposures, would become a weak link in the financial sector under such a scenario. More generally, we note that China’s equity market performance remains a side issue for the Chinese economy,” the agency said.

Source (http://www.cnbc.com/)