APAC banks face potential impact from falling property prices

China’s declining property sales and home prices signal weakened confidence.

Whilst Asia Pacific's (APAC) overall credit conditions are holding steady with prospects for recovery, ongoing trade disputes and economic challenges in China pose significant risks. This includes potential impacts on banks if property prices continue to fall, S&P Global Ratings revealed in a report.

In China, despite aggressive stimulus measures, property sales and home prices are declining sharply. This decline reflects weakened household confidence, which in turn affects developers' liquidity and poses risks to local and regional governments' fiscal health, S&P Global Ratings "Credit Conditions Asia-Pacific Q3 2024: A Trade Showdown Unfolds" said.

The US Federal Reserve's expected policy rate cuts towards the end of the year are anticipated to influence monetary policies across APAC. Many central banks in the region are likely to adjust their policies to manage foreign exchange outflows and support economic stability.

Currency weakness in emerging Asia and Japan raises concerns about higher debt burdens from offshore borrowings and imported inflation. However, depreciating home currencies can benefit export-oriented countries such as South Korea, Taiwan, Hong Kong, and Singapore, by making their exports more competitive.

Overall, credit conditions in the region remain stable. Economic growth is resilient, and there are signs of a credit recovery in 2025 based on S&P Global Ratings' proprietary indicators. 

However, the credit outlook is nuanced, with a slight negative bias indicating divergent financial situations across sectors and population cohorts.

There is a widening gap between sectors that benefit from current economic conditions and those facing challenges. Lenders may become more cautious, potentially reducing credit lines for weaker borrowers. Credit stresses and recessionary risks could intensify in certain segments.