In contrast, individual borrowers have shown resilience. Chinese households have become more prudent, with savings rising in recent years. Many individuals have even repaid their loans early, reflecting a cautious approach to managing uncertainty and mitigating risks in a weakened property market.

Despite concerns around corporate real estate loans, these account for less than 5% of BOC’s total loan book. The bank has also made sufficient allowances for potential bad debts. This conservative approach has paid off—rather than a spike in non-performing loans (NPLs), BOC has reported a decline. Its ability to maintain asset quality while simultaneously growing revenue and loans underscores its operational strength and prudent management.

Take Bank of China (BOC) as an example. I’ve marked the point on its stock chart where Evergrande defaulted on its loans—a pivotal event in the property crisis. Remarkably, this did not derail BOC’s share price. Instead, its stock, including dividend gains, has climbed more than 70% since that event.

BOC’s exposure to real estate loans stood at 31.42% at the end of 2023, according to S&P Global estimates. From its annual report, we can see that 4.39% of its total loan book is tied to corporate loans to the real estate sector, with the remainder assumed to be personal loans. The distinction is crucial: corporate real estate loans—extended to developers—are where the risks lie. Developers have borne the brunt of the crisis, struggling with cash flow and slowing project sales.

This resilience is no coincidence. BOC has delivered real business growth and strong financial performance, even amidst the pessimism surrounding China’s economy. Over the past five years, operating income and profits have steadily increased, showcasing the bank’s ability to navigate through challenging conditions.

China’s “Big Four” banks had a remarkable year in 2024, delivering impressive returns despite a challenging macroeconomic environment characterised by sluggish economic growth, low consumption, and a lingering property crisis. Total returns, including dividends, ranged from 44% to 58%, defying critics who had dismissed China as “un-investible”.

In terms of valuation, Bank of China (BOC) is no longer the deep-value play it once was, but it remains fairly priced. The bank’s current valuation metrics are slightly higher than its five-year averages, reflecting the strong rally in its share price:

Price-to-Book (PB): 0.44x vs. 0.4x (5-year average)

Price-to-Earnings (PE): 4.9x vs. 3.8x (5-year average)

Dividend Yield: 6.6% vs. 8% (5-year average)

 finally ,the lower dividend yield compared to historical levels, a 6.6% yield remains highly attractive. Moreover, BOC has a solid track record of increasing its dividend per share, which suggests the potential for further dividend growth. If this trend continues, investors could enjoy an even higher yield on cost over time.