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.