(Bloomberg) -- Chinese banks’ earnings may fall as much as 10% in 2024 if their bad debt ratios continue to rise on defaulting developers, according to JPMorgan Chase & Co. analysts.

Developers’ nonperforming loan ratio for banks is expected to rise to 7.5% — from 4.5% as of the first half of 2023 — in the firm’s base case scenario, analysts including Katherine Lei wrote in a note Wednesday. 

The ratio could go up to 13% if all privately-owned builders and “low quality” state-owned developers were to go into distressed status, pushing earnings down by 10%, they said. 

Chinese lenders’ earnings and margins have declined as the sector bears the brunt of government pressure to shore up growth by cutting rates and extending loans. Developers’ liquidity issues and slow debt restructuring progress have also heightened investor concerns over banks’ financial health, many of which have sizable exposures to the property sector.

The CSI 300 Banks Index has slumped 10% from a May peak, and is trading at just 0.54 times price-to-book ratio, lower than its regional and global peers.

Ping An Bank Co. and China Minsheng Banking Corp. have larger developer exposure and may see more pressure to their earnings, the analysts said. 

China Merchants Bank Co., Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. may be less vulnerable, according to the note. 

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