Risk Analysis Report on the Non-Performing Loan Ratio of Huishang Bank's Real Estate Segment

According to the data I collected, Huishang Bank’s real estate NPL ratio indeed surged from 1.08% at the end of 2024 to 3.12% in the first half of 2025 within six months, an increase of nearly threefold [0]. This sharp change reflects severe risk challenges faced by the bank in the real estate credit sector. The following is a systematic analysis from multiple dimensions, along with risk control strategy recommendations.

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The sharp surge in Huishang Bank’s real estate NPL ratio in a short period is the result of the superposition of multiple factors. From a macro perspective, the real estate market has continued to adjust since 2024, with some real estate enterprises facing tight cash flow and frequent debt defaults, which has directly transmitted to the quality of the bank’s credit assets [0]. From a meso perspective, although Anhui Province’s economic fundamentals are relatively stable, overcapacity in traditional industries still exists, and upstream and downstream enterprises relying on these industries have been greatly impacted [0]. From a micro perspective, affected by the slow macroeconomic recovery and fluctuations in the real estate market in 2024, some small and medium-sized clients of Huishang Bank in the manufacturing and transportation industries faced increased operational difficulties, coupled with reduced income of individual clients leading to a significant decline in their repayment ability [0].

As of the end of 2024, the combined proportion of Huishang Bank’s loans to the construction industry, real estate industry, and personal housing mortgages reached 21.03%, representing a large exposure to real estate-related sectors [0]. In terms of loan industry distribution, the bank’s loans are mainly concentrated in public utilities, commerce and services, and manufacturing, accounting for 22.60%, 12.46%, and 12.36% of the total loans respectively [0]. This relatively concentrated credit structure has amplified risk exposure during the downward cycle of the real estate market.

It is worth noting that Huishang Bank has certain deficiencies in risk management and internal control. According to regulatory penalties in 2024, the Hefei Ningguo Road Branch was fined 5.5 million yuan, the highest annual fine, for deficiencies in the full-process management of working capital loans; the Ningbo Branch was fined 2.6 million yuan for six credit violations; and the Head Office was fined 3.95 million yuan for systemic deficiencies such as imprudent interbank credit management and distorted data in the EAST system [0]. These internal control issues are somewhat related to the surge in real estate NPL ratio.

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Huishang Bank has implemented a number of risk control measures: At the organizational structure level, all real estate development loans have been transferred to the Head Office for approval, and a name-list-based access system has been implemented for developers [0]. At the collateral management level, pledged and hypothecated loans account for 37.48%, with the main collaterals being real estate and land, and the maximum loan-to-value ratio does not exceed 70% [0]. At the risk resolution level, the bank disposed of a total of 15.881 billion yuan of non-performing loans in 2024, including 6.240 billion yuan in cash collection and 6.816 billion yuan in write-offs [0]. These measures have contained the spread of risks to a certain extent.

However, the current measures still have obvious shortcomings. First, the risk early warning mechanism lacks forward-looking capabilities and failed to effectively predict systemic risks in the real estate industry. Second, the implementation of the name-list-based management needs to be strengthened, as some high-risk real estate enterprises may still be on the credit approval list. Third, there are weak links in post-loan management, and the monitoring of credit fund flows is not timely enough. Fourth, the construction of internal control and compliance culture needs to be further strengthened, and repeated regulatory penalties reflect that awareness of compliance needs to be improved.

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: It is recommended to systematically upgrade the access standards for real estate development loans. In addition to the traditional “three red lines” indicators, more multi-dimensional risk assessment indicators should be introduced, including but not limited to: cash flow coverage ratio of real estate enterprises, inventory turnover rate, quality of land reserves, project de-stocking cycle, etc. For real estate enterprises that trigger any of the early warning indicators, more prudent credit policies should be implemented, or even new credit extensions should be prohibited.

: Establish a dynamic adjustment mechanism for the name-list-based management of developers. Conduct a comprehensive risk assessment of existing real estate enterprise clients every quarter, and adjust the list levels in a timely manner based on factors such as operating conditions, financial indicators, litigation, and public opinion changes. For real estate enterprises showing risk signals such as debt default, layoffs and downsizing, and project suspension, risk early warning should be activated immediately and corresponding control measures should be taken.

: Appropriately reduce credit concentration in the real estate market to diversify risk exposure of credit assets. Increase support for sectors such as manufacturing, technological innovation, and green credit to achieve optimization and adjustment of the credit structure. At the same time, optimize client concentration management to avoid over-lending to a single real estate enterprise or a single project.

: Advance the full-process digital transformation of credit risk management in depth, and strive to build a “1+N” smart risk control system [0]. Utilize big data and artificial intelligence technologies to enhance risk identification, early warning, and prevention and control capabilities, so as to achieve early detection, early warning, and early disposal of risks. Specifically, machine learning models can be introduced to predict the default probability of real estate enterprises, and automatic capture and early warning of risk signals can be realized through real-time monitoring of multi-dimensional data such as public opinion, litigation, and transactions.

: Establish a sound post-loan management system and implement penetrating risk monitoring. For real estate development loans, the project development progress, sales progress, and fund collection status should be tracked regularly to ensure that the use of credit funds is compliant and risk exposure is controllable. For personal housing mortgage loans, attention should be paid to changes in borrowers’ income and repayment records to identify potential risks in a timely manner.

: On the basis of the current 37.48% proportion of pledged and hypothecated loans, further improve the collateral management mechanism [0]. Establish a dynamic monitoring system for collateral value, and conduct regular assessments and stress tests of collateral value. Against the background of the downward real estate market, appropriately increase risk reserves to ensure sufficient risk buffer when collateral value declines.

: On the basis of disposing of 15.881 billion yuan of non-performing loans in 2024, further intensify disposal efforts [0]. Comprehensively use various means such as cash collection, write-off and transfer, asset securitization, and debt-to-equity swaps to accelerate the clearance of non-performing assets. For projects with restructuring value, risk resolution can be explored through debt restructuring, extension, and replacement.

: Strengthen cooperation with local asset management companies (AMCs) in Anhui Province and even across the country, and accelerate non-performing asset disposal through means such as batch transfer and packaged disposal. At the same time, the establishment of a special non-performing asset disposal fund can be explored to introduce social capital into risk resolution.

: Promote special actions for written-off non-performing assets, and strengthen the collection management of written-off assets. Establish a special assessment mechanism, and include the recovery rate of written-off assets in business performance assessment to improve the efficiency of collection and disposal.

: In response to the issue of repeated regulatory penalties, in-depth reflection should be conducted on deficiencies in internal control and compliance [0]. Continuously deepen internal control and compliance management, improve the internal control balance indicator system, carry out activities such as the “Year of Improving Case Prevention” and the “100-Day Compliance Enhancement Campaign”, and launch an employee abnormal behavior monitoring model to prevent compliance risks from the source.

: Establish and improve a risk management responsibility investigation mechanism, and clarify the risk management responsibilities of managers at all levels. For risk losses caused by inadequate performance of duties, the responsibilities of relevant personnel should be strictly investigated to form an effective risk restraint mechanism.

: Within the scope permitted by regulators, further enhance the transparency of information disclosure on real estate loan quality. By proactively disclosing information such as real estate loan structure, NPL ratio change trends, and risk response measures, market confidence can be enhanced and investor expectations can be stabilized.

: As of the end of 2024, Huishang Bank’s non-performing loan provision coverage ratio was 276.57% [0]. Against the background of the sharp surge in real estate NPL ratio, the provision coverage ratio should be appropriately increased to enhance risk mitigation capabilities. It is recommended to raise the provision coverage ratio to over 300% to reserve sufficient buffer for potential risk losses.

: The core tier 1 capital adequacy ratio remains at a stable level of 9.62% [0]. Under the pressure of asset quality, attention should be paid to capital management, and the capital base should be consolidated through endogenous profit retention and exogenous capital supplementation to enhance risk resistance capabilities.

: In view of the particularity of real estate loan risks, it is recommended to establish a special risk reserve system for real estate loans. In addition to regular provisions, special provisions should be extra accrued based on the balance of real estate loans and the changing trend of NPL ratio to enhance preparedness for systemic risks in the real estate industry.

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Huishang Bank should closely follow the latest policy requirements of regulators on real estate loans, and strictly implement regulatory indicators such as the real estate loan concentration management system and the upper limit of personal housing loan proportion [0]. During the risk resolution process, proactively communicate and align with financial regulators to seek regulatory policy support and a time window for risk disposal.

Proactively participate in seminars and experience exchanges on real estate risk resolution organized by banking associations, financial institutions, and other organizations, and learn from advanced practices of peer institutions in real estate loan risk control. At the same time, cooperate with local governments to do a good job in ensuring housing delivery and risk resolution of real estate enterprises, while fulfilling social responsibilities and safeguarding the bank’s creditor’s rights and interests.

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The surge in Huishang Bank’s real estate NPL ratio from 1.08% to 3.12% reflects severe challenges faced by the bank in the real estate credit sector, while also exposing deficiencies in its risk management and internal control. Facing this situation, Huishang Bank needs to adopt systematic measures from multiple dimensions such as source control, process management, asset disposal, governance optimization, and risk mitigation to form a complete closed loop of risk prevention and control.

From a positive perspective, Huishang Bank’s overall asset quality remains relatively stable, with an NPL ratio of only 1.49% as of the end of 2024, which is significantly better than the industry average; the provision coverage ratio reaches 276.57%, with strong risk mitigation capabilities [0]. The bank has established a relatively sound risk management system framework and is promoting digital transformation of risk control. As long as it can face up to the problems and implement precise measures, it is expected to gradually resolve real estate loan risks and achieve stabilization and recovery of asset quality.

In the future, Huishang Bank should adhere to the general tone of “seeking progress while maintaining stability” in risk management, and while effectively preventing and resolving real estate loan risks, continue to optimize the credit structure, enhance the ability to serve the real economy, and embark on a development path where high-quality development and high-level security complement each other.

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[0] 2025 Annual Tracking Rating Report of Huishang Bank Co., Ltd. (http://qxb-pdf-osscache.qixin.com/AnBaseinfo/92505e5dd1256b75d4790545bff6cf4f.pdf)

[1] 2024 Annual Report of Huishang Bank Co., Ltd. (https://www.hkexnews.hk/listedco/listconews/sehk/2025/0327/2025032701880_c.pdf)

[2] Twenty Years of Glory Reflecting the Yangtze-Huaihe Region, Financial Original Aspiration Forging Brilliance — A Glimpse of Huishang Bank’s Development on its 20th Anniversary (http://www.ah.xinhuanet.com/20251228/3aa9bc3a84f94f30bfdd2a2d6074473d/c.html)

[3] Shocking! Huishang Bank Sells 820 Million Yuan of Real Estate in Beijing, Vanke is Actually the Fifth Largest Shareholder (https://eu.36kr.com/zh/p/3321997728164102)