Citic Bank provisions for bad debts to hurt profit next year

PUBLISHED : Wednesday, 31 October, 2012, 12:00am
UPDATED : Wednesday, 31 October, 2012, 2:30am

Citic Bank is stepping up its provisioning against potential bad loans, which analysts said is likely to weigh on its profit next year.

"The increase in provisions is our advanced plan to meet the regulatory requirement on the [loan-loss] provision ratio," Wang Kang, general manager of Citic's planning and finance department, said yesterday.

The bank's provision ratio rose by 0.17 percentage point to 1.84 per cent at the end of the third quarter from the second quarter, but the figure is still lower than the bank's peers and the regulatory requirement, he said.

Citic bank reported on Monday a 14.7 per cent decline in net profit in the third quarter from a year ago to 7.85 billion yuan after making a four billion yuan provision for current and potential bad loans, a significant increase from the 231 million yuan it set aside in the second quarter.

Wang said the mainland's seventh-largest lender by market value will continue to step up efforts in providing for bad loans in the fourth quarter and next year.

"The amount of provision in the coming quarters will also depend on the condition of non-performing loans," he said.

On the mainland, lenders are required to hold a sum equal to 2.5 per cent of their outstanding loans from next year when China's equivalent of Basel III capital requirements takes effect. Larger banks have two years, while smaller banks have from five to seven years to comply.

Barclays' analysts said Citic Bank's net profit next year would decline 13 per cent from this year if the bank continued to set aside four billion yuan in provisions in each of the next six quarters.

The bank's non-performing loans went up by 2.9 per cent to 9.7 billion yuan in the third quarter from the second quarter.