China Construction Bank braces for rise in bad loans
The bank says urgent risk control measures are necessary with a surge in overdue loans in the first half raising the prospects of a default crisis
China Construction Bank is likely to come under pressure from an increase in bad loans in the second half of this year, after reporting a non-performing loan ratio of less than 1 per cent at the end of June, the bank's chairman, Wang Hongzhang, told a press conference in Beijing yesterday.
CCB, the mainland's second-largest lender by assets, said in its interim report, released on Sunday, that its NPL ratio was unchanged in the first half of the year at 0.99 per cent.
"However, overdue loans surged over the period, which could sow the seeds for a default crisis if no proper risk-control measures are taken," Wang said.
As a precaution, the bank recently overhauled its system so risk control responsibility was shared by branch heads and risk managers at its headquarters, Wang said. Previously, responsibility rested with headquarters.
"In some regions, for example in the eastern provinces of Jiangsu and Zhejiang, the economy slowed down and brought some operational difficulty to our branches there," he said. "But I believe the operation of our bank will be stable in general."
Pang Xiusheng, a vice-president of the bank, said more write-offs of bad loans were expected in the second half, while the mainland's asset securitisation, which allows lenders to sell NPL-backed debts, was not expected to involve big amounts as regulatory arrangements were not yet ripe.
As for introducing certificates of deposit, Pang said it would only apply to interbank deposits in the near future, instead of corporate or personal deposits in banks.
CCB's chief risk officer, Zeng Jianhua, said in Hong Kong yesterday that the People's Bank of China was "in consultation with major banks about the possibility of launching CDs".
"We could see the launch of CDs in the second half," Zeng said.
The launch of interbank CDs by the People's Bank of China would have a much smaller impact on lenders' bottom lines than CDs on corporate deposits, although it would be regarded as a step forward towards interest rate liberalisation, analysts said.
Chen Caihong, the secretary of CCB's board, said mainland banks faced challenges from a decelerating economy, interest rate deregulation and emerging competition from internet companies' financial businesses.
Wang said CCB's electronic banking was better than that of its Hong Kong peers, adding it would continue to expand the business with strict risk controls.
CCB posted a 9.7 per cent year-on-year rise in net profit for the second quarter, the smallest gain in five quarters, amid a slowing economy. For the first half, profit climbed 12.7 per cent to a record 119.7 billion yuan.
Wang said he hoped Bank of America would retain a stake in CCB when its 0.8 per cent stake, with a market value of HK$11.58 billion, became tradeable at the end of this month.