China’s Bank of Communications reports flat interim profit growth as bad loans on the rise

Bank of Communications (BoCom), mainland China’s fifth-largest lender, reported meagre profit growth for the first half of the year as declining net interest income and increasing bad loans offset its buoyant insurance business.

The Shanghai-based lender said profits for the first six months amounted to 37.66 billion yuan, up 0.9 per cent from a year ago. For the second quarter, it posted a 1.3 per cent year-on-year profit rise.

“The earnings results are basically in line with market expectations,” said Wu Kan, head of equity trading at Shanghai-based investment firm Shanshan Finance. “But there are still lingering worries about Chinese banks’ worsening asset quality since bad loans would continue to rise for the coming quarters.”

BoCom president Peng Chun told reporters on Thursday that it would probably take three to five years before the bad-loan woes facing the mainland banking sector went away.

The Shanghai-based lender said non-performing loans accounted for 1.54 per cent of its total credit, compared to 1.51 per cent in the year-earlier period.

It wrote off 14.8 billion yuan of non-performing loans in the six months ended June 30, 3.35 billion yuan more than the figure of 11.45 billion yuan a year earlier.

“Small-size companies are still the risky businesses where bad debts are arising,” said Yang Dongping,

BoCom’s chief risk officer, adding that Jiangsu, Zhejiang, Shandong and Fujian provinces, as well as Tianjin municipality, saw bad loans rise relatively faster than other regions.