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Highlights
- British banks could be in jeopardy due to an economic meltdown in China, as per Bank for International Settlements data.
- China’s property sector is in shock after the crisis faced by property giant Evergrande, buried under debts worth £220 billion.
- British banks, like HSBC and Standard Chartered, are highly vulnerable as they are the largest creditors to China.
A recent report has revealed that British banks could be in jeopardy due to an economic meltdown in China. The vulnerability of the UK lenders to the economic meltdown is high because they are the largest creditors to China, as stated by the Bank for International Settlements. The report highlighted that loans worth around £187 billion were tied up in the country by end of June this year, which has gone up by 20% since December 2019.
Amid the threats of a debt crisis in China, Bank of England and several analysts are expressing their concerns about to its impact on British banks. China’s property sector is in shock after the crisis faced by property giant Evergrande, buried under debts worth £220 billion. Being on the brink of collapse, the real estate company has instilled fears in the minds of property developers that it could lead to a failure of the entire property sector as it alone owns properties in 280 cities across China.
HSBC and Standard Chartered are two of the largest global banks operating in China, which are both UK-based and are listed in London. Not just the British banking system, but the global financial system is influenced by Beijing as its growth has mushroomed.
As compared to the West, China showed a faster recovery from the pandemic, but its growth has halted recently with inflation levels rising along with the weakening of the GDP growth. According to the Bank for International Settlements data, the exposure of international banks to China was worth around £705 billion as of mid-2021. UK lenders could have an additional £29 billion tied up in China via other debt deals as well. By June end, Japan had £72 billion, and the US had £101 billion tied up in China.
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UK-based bank Santander has warned that the British recovery from the pandemic could be hampered by supply chain issues and disruption of the job market. The earnings of banks will be influenced by the inflation levels and interest rates. Higher interest rates, as expected, would lead to more earnings for the banks.
Let’s take a look at some of the British banks which may be impacted by the Chinese economic meltdown.
HSBC Holdings plc (LON: HSBA)
HSBC Holdings plc is the second largest bank in Europe and has a significant global presence. Its current market cap stands at £89,947.14 million. It has given a return of 38.53% in 1 year. The shares of HSBC Holdings plc were trading at GBX 440.40 as of 28 October 2021.
Standard Chartered PLC (LON: STAN)
Standard Chartered PLC provides its banking services mainly across Asia, Africa, and the Middle East. The FTSE 100 constituent has a current market cap of £15,041.50 million. It has given a return of 30.72% in 1 year. The shares of Standard Chartered PLC were trading at GBX 488.50 as of 28 October 2021.
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Santander UK plc (LON: SAN)
Wholly owned by the Spanish Santander Group, Santander UK plc offers loans, mortgages, credit cards etc. Its profits have recently jumped up due to soaring UK mortgage demand. The shares of Santander UK plc were trading at GBX 174.64 as of 26 October 2021.
Barclays PLC (LON: BARC)
Barclays PLC has two wings for operations: Barclays UK and Barclays International. The FTSE 100-listed bank has a current market cap of £33,523.98 million. It has given a return of 91.98% in 1 year. The shares of Barclays PLC were trading at GBX 199.28 as of 28 October 2021.
Lloyds Banking Group PLC (LON: LLOY)
Lloyds Banking Group offer both retail and commercial financial services to companies. The FTSE100-listed bank’s current market cap is £35,199.64 million. It has given a return of 79.31% in 1 year. The shares of Lloyds Banking Group PLC were trading at GBX 49.58 as of 28 October 2021.