China Construction Bank

Rise in bad loans at mainland banks no threat to profits

Analysts say increase in non-performing debt at mainland banks will be small

PUBLISHED : Saturday, 20 October, 2012, 12:00am
UPDATED : Saturday, 20 October, 2012, 2:35am

The level of non-performing loans is expected to keep rising at mainland banks, but analysts say the relatively slow pace is unlikely to weigh on their profits this year.

The average non-performing loan ratio of the nine banks listed in Hong Kong was expected to edge up in the third quarter to 0.98 per cent from the second quarter, Macquarie analysts said in a report, while the overdue loan ratio would remain stable at 1.32 per cent of total loans.

The banks are set to report their third-quarter results from October 25, and Macquarie expects average profit growth of 15 per cent for the first three quarters of this year from the year-earlier period, bolstered by growth in loans and assets.

Regarding the quality of assets at banks, some analysts forecast that the amount of bad loans would increase, but at a slow pace.

Chen Xingyu, an analyst with Phillip Securities in Shanghai, said the non-performing loan ratio and the underlying amount of non-performing loans would continue to rise in the next 12 months, but not significantly, making it unlikely that large provisions would be set aside for souring loans.

"The provision levels of lenders are higher than regulatory requirements. If the non-performing loans just go up slowly, they don't need to significantly increase their provisions," Chen said, adding that the rise in bad loans was unlikely to drag down profits this year.

For the full year, Chen expects three of the country's Big Four banks - Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China - to post double-digit profit growth this year, while Bank of China would report single-digit growth.

Singapore-based research and intelligence company Asian Bankers said this week in its annual survey that the Big Four banks were likely to be "highly profitable" for the rest of the year.

"The country's economic hard landing is unlikely to seriously hamper their business," the survey said, projecting double-digit profit growth for the Big Four except BOC, which is expected to report a 7 per cent increase this year.

The four banks had "sheer dominance" in deposit business because of their recognised brand and extensive networks across the mainland, the survey said.