Summary of Key Points
Shanghai Bank is facing a significant challenge due to its heavy exposure to real estate loans during the housing expansion period in previous years, which has now resulted in defaults by numerous real estate companies. The bank has achieved a victory in three loan disputes with the Baoneng Group (total principal amounting to over 12.9 billion yuan), but the recovery of funds is uncertain as Baoneng's assets have been seized multiple times. The bank is also pursuing debts from other troubled real estate entities such as Taihe, Evergrande, and Shimao. The root of these issues lies in Shanghai Bank's substantial increase in real estate loans after 2017; when the real estate market declined in 2021, the risks became apparent. Although the bank has since reduced its real estate loan portfolio, the consequences of its earlier decisions will take time to resolve.
I. Baoneng Group's Debts: Can the Money Be Recovered Despite a Victory in Court?
Shanghai Bank has three loan disputes with the Baoneng Group, totaling approximately 12.96 billion yuan in principal, plus interest and penalties amounting to over 18 billion yuan. The first case, involving a loan of 2.58 billion yuan granted to Baoneng's Togis Technology for a real estate project in 2020, resulted in a victory for the bank in 2026. However, with Baoneng's financial chain breaking in 2021 and the principal and interest being overdue, the recovery of funds remains uncertain. The other two cases are more complex: one involves a loan of 7.8 billion yuan granted to Shenyi Logistics through a trust in 2018-2019 (with 7.376 billion yuan remaining after the deadline), for which the bank won the first-instance judgment but is still awaiting an appeal; the other case concerns a merger and acquisition loan of 3.13 billion yuan granted to Fangrui Investment, with only 3 billion yuan remaining and the case just starting in the first instance.
More importantly, Baoneng currently has interest-bearing debts of over 190 billion yuan and is subject to enforcement for 33 billion yuan in debts. Most of its assets have been seized multiple times. Even if Shanghai Bank wins all the lawsuits, the actual amount it can recover is uncertain, as this situation is common in cases of real estate company defaults.
II. Not Just Baoneng: Shanghai Bank Has a Long List of Troubled Real Estate Debtors
Baoneg Group is just the tip of the iceberg for Shanghai Bank's real estate loan risks. After the real estate market adjusted in 2021, many of the bank's real estate clients faced financial difficulties:
- Taihe: The Shibei branch granted a loan of 640 million yuan that became overdue in 2021; the bank recovered approximately 700 million yuan through litigation, and Taihe Tower was seized to cover the debt.
- Evergrande: The Shenzhen branch granted a loan of 2.5 billion yuan that became overdue. Although the collateral was valued at 3 billion yuan, the bank is still pursuing an additional 2.04 billion yuan in principal through litigation in 2023.
- Shimao: In 2022, the bank sued Shimao Group for 1.349 billion yuan; the collateral was a comprehensive project in Xiamen valued at 2.09 billion yuan, and enforcement proceedings began in 2024.
- Other companies such as Jingrui, Rongchuang, Sunshine City, and Jiazhaoye also defaulted during 2021-2022, turning their loans into bad debts.
The total amount of real estate-related debts that Shanghai Bank is trying to recover is substantial.
III. The "Craziness" During the Expansion Period: Why Did Shanghai Bank Get Involved in So Many Problems?
The root of the problems dates back to 2017, when the real estate market was still booming, with rapid price increases in the Yangtze River Delta region and high demand for development loans. After a new management team took over at Shanghai Bank in 2017, it followed the trend and significantly increased its real estate loan portfolio:
- Corporate Real Estate Loans: These loans increased by 70.74% year-on-year in 2017 (after two years of negative growth) and another 40% in 2018.
- Mortgage Loans: The growth rate for mortgage loans reached 31.14% in 2020, several times higher than in 2015.
- Proportion Increase: Real estate-related loans (both corporate and mortgage) accounted for 25.55% of the total loans in 2020, making Shanghai Bank one of the city commercial banks with the highest proportion of real estate loans.
At that time, the real estate market was performing well, and the "bad debt rate" (the percentage of non-performing loans) was low—for example, the bad debt rate for corporate real estate loans was only 0.04% in 2018. Therefore, the bank felt confident in making these investments. Who could have predicted such a sharp downturn in the industry?
IV. How Is Shanghai Bank Managing the Risks After They Became Apparent?
In 2021, as real estate regulations tightened and the market contracted, the risks associated with Shanghai Bank's real estate loans finally emerged:
- Increase in Bad Debt Rates: The bad debt rate for corporate real estate loans soared from 0.1% in 2020 to 3.05% in 2021, and the mortgage loan bad debt rate also increased from 0.14% to 0.69% in 2025.
- Emergency Measures: After Zhu Jian took over as the new bank president in 2021, the bank began to reduce its real estate loan portfolio. Corporate real estate loans decreased from 156 billion yuan in 2021 to 123.7 billion yuan in 2025, with their proportion dropping from 12.75% to 8.59%. Mortgage loan growth also virtually ceased.
- Managing Bad Debts: The bank either pursues legal actions to seize collateral or recognizes potential losses (anticipating that some loans will not be recovered). However, due to the large amount of investments made earlier, these issues cannot be resolved quickly. For example, the corporate real estate loan bad debt rate rebounded to 2.91% in 2025, indicating new problems have emerged.
Conclusion
Shanghai Bank's situation is a microcosm of what many banks experience during economic cycles: they invest aggressively when the industry is booming but struggle to cope with problems when it declines. Although the bank is now reducing its real estate loan exposure, the consequences of its past reckless expansion will take time to resolve. This serves as a reminder that both businesses and banks should be cautious when following market trends in expansion, as the tide can reveal who is truly prepared when times get tough.