Advertisement
Advertisement
Agricultural Bank of China
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
Net income at Agricultural Bank slowed to 6 per cent quarter on quarter, its weakest growth since 2011. The lender also reported the highest NPL ratio. Photo: Bloomberg

Higher bad-loan rates tipped for Bank of China and Agricultural Bank

Average non-performing loan ratio among five biggest mainland banks increases to 1.14pc in third quarter with trend to continue into 2015

Don Weinland

Bad debt at the mainland's biggest banks continued to climb in the third quarter, sparking a warning on mounting risk and potential corporate defaults from a top central bank official.

The average non-performing loan ratio among the five biggest banks climbed to 1.14 per cent from 1.08 per cent in the second quarter.

Agricultural Bank of China, which reported earnings yesterday, led the five state banks in bad loans, with a non-performing loan ratio of 1.29 per cent. The increase, however, was just five basis points off the second half of the year.

Industrial and Commercial Bank of China drove home worries on Wednesday over sharp increases in bad debt when it reported that its non-performing loans had jumped 9.2 per cent between July and September to a ratio 1.06 per cent, the highest since 2006.

Yi Gang, a deputy governor of the People's Bank of China and head of the State Administration of Foreign Exchange, said accumulating bad loans presented an increasing level of risk as borrowers entered a high payback period.

At a time when central and local governments continue to bail out defaulting trust companies and struggling corporations, maintaining an implicit guarantee on high-risk investments, Yi said some cases of default were normal.

"We say we want to control risk but that's not to say we want to completely eliminate all risk," he was quoted as saying at a financial forum yesterday.

A centrally controlled asset management company this month guaranteed a bond for Shanghai Chaori Solar Energy Science & Technology, reinforcing Beijing's will to bail out even the smallest firms that are at the risk of going belly up.

Bad debts are expected to continue to rise until well into next year as the property sector slows and companies in sectors plagued by overcapacity such as iron and steel come under greater pressure to repay loans.

"This is a phenomenon of the whole banking sector," Richard Cao, a Shenzhen-based banking analyst at Guotai Junan International, said of the rising rate of bad debt on the mainland.

Bank of China reported an NPL ratio of 1.07 per cent yesterday, showing only moderate growth in bad debt.

China Construction Bank, however, reported last week a steep increase in the ratio for the quarter, to 1.13 per cent from 1.04 per cent in the first half. The jump was attributed to the completion of its acquisition of 72 per cent of Brazilian bank Banco Industrial e Comercial in August and the inclusion of that business, bringing on to its balance sheet 5.44 billion yuan (HK$6.89 billion) of bad loans.

"We have concerns about CCB's asset quality going forward," said Erin Lee at Yuanta Securities, noting that its NPL ratio could reach 1.18 per cent by the end of the year.

Profits at the biggest banks have also continued to fall, although across-the-board declines in profit growth are expected by analysts as the biggest banks exit an era of double-digit growth.

Net income growth at Agricultural Bank in the quarter slowed to 6 per cent from a year ago, its weakest since 2011. BOC's net income rose a slower 4.9 per cent.

This article appeared in the South China Morning Post print edition as: Central bank warns of risk from rising bad debt levels
Post