Rise in bad loans at mainland banks no threat to profits

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.