ICBC bad loans well covered

PUBLISHED : Thursday, 14 July, 2005, 12:00am
UPDATED : Thursday, 14 July, 2005, 12:00am

Industrial & Commercial Bank of China (ICBC), the country's largest bank, had sufficient loan-loss provisions to cover its non-performing loans at the end of last month, a milestone on its path to a foreign stock market listing.

The improvement came after a US$15 billion state cash injection in April followed by the state-financed disposal of 705 billion yuan of problem loans in its books.

ICBC's ratio of non-performing loans (NPL) to total outstanding loans also fell 14.41 percentage points since January to 4.58 per cent at the end of last month.

The interim figures released yesterday offered the first public glimpse of the financial state of the Beijing-based lender since its recapitalisation.

At the end of last year, ICBC had a meagre 21.19 billion yuan in loan-loss reserves - or barely 5 per cent of the regulatory minimum - against a reported 703.6 billion yuan of impaired loans in a total loan portfolio of 3.7 trillion yuan.

Unlike the December 2003 bailout of Bank of China (BOC) and China Construction Bank (CCB), in which each received US$22.5 billion, the central government opted for a smaller US$15 billion initial cash injection into ICBC but greater help in disposing of its impaired loans, ratings agency Moody's said.

In the first half, Beijing financed the removal of 246 billion yuan of loans labelled as 'total loss' and 459 billion yuan in loans dubbed 'doubtful' - the two worst of China's three NPL categories - from ICBC's balance sheet. The loans were paid off at face value.

With the bulk of the bad loans removed, ICBC's loan-loss coverage ratio reached 100 per cent by the end of last month. By contrast, BOC and CCB received only 50 per cent of the face value of doubtful loans worth a total of 278.7 billion yuan taken off their books last year, forcing them to write off 50 per cent of each loan.

ICBC's recapitalisation this year boosted its capital adequacy ratio to 9.12 per cent, above the regulatory minimum of 8 per cent.

Of its capital base of 280.6 billion yuan at end-June, 252.5 billion yuan was high-quality core capital made up of shareholders' equity. That gave the bank a core capital adequacy ratio of 8.07 per cent, double the 4 per cent regulatory requirement.

The bank booked operating profit of 41.6 billion yuan in the first half, up 7 per cent year on year. About 93.5 per cent of the earnings were used to increase provisions and write off bad assets. It had a loan book of 3.1 trillion yuan.