Citic's bad loan writeoff a sign of strain in China's mid-sized banks

PUBLISHED : Tuesday, 28 January, 2014, 1:35am
UPDATED : Tuesday, 28 January, 2014, 1:35am

China Citic Bank's shareholders have agreed for the bank to more than double bad-loan writeoffs for last year, the latest sign of how much China's economic slowdown is costing the country's mid-sized banks.

At a meeting in Beijing yesterday, shareholders signed off as expected on management's plan to write off 5.2 billion yuan (HK$6.6 billion) in non-performing assets, Citic said in a Hong Kong stock exchange filing. The bank originally budgeted for two billion yuan in writeoffs.

Exposed in particular to a buckling in the country's steel industry as China's slowing growth depresses demand, the bank's move offers a rare public glimpse of loan-loss management by mid-sized lenders under pressure to strengthen their balance sheets amid tighter global rules on capital.

Citic said its net profit for 2013 would not be affected by the steeper writeoffs as it will also cut its tax liability.

Yet the move highlights the bank's above average non-performing loan ratio, which stood at 0.9 per cent at the end of September last year, the last period for which data is available, compared with 0.83 per cent for other mid-sized lenders.

The bank's request for shareholder approval was a formality because of the government's majority stake in the bank. But it was also an unusual step, as a company's directors have the authority to write off bad debts in the normal course of business, without public disclosure.

"Normally speaking, you're not required to do this on a regular basis," said Grace Wu, a China banking analyst at Daiwa Capital Markets. "It's because the amount of disposal for Citic Bank is higher than what they were originally planning for."

Yet the writeoffs for 2013 may not be the end of Citic's bad loan headaches. Its loan-loss coverage ratio - defined as the ratio of loan-loss reserves to total loans - stood at 2.09 per cent at the end of September, well below the system-wide average of 2.78 per cent.

Mid-sized banks are generally faring better than their larger counterparts. The country's big banks had an average non-performing loan ratio of 0.98 per cent at end-September 2013, according to official figures.

This is in part due to the big banks' higher exposure to politically directed lending, which may be subject to less rigorous risk management, said Wu.