bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

urlAlias

moreOnThisArticles

sponsorType

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

SCMP Reporter

Move may hit earnings, share prices
Mainland banks will have to raise  provisions for bad debts substantially this year to cope with  aggressive lending policies and a rapidly cooling economy, a move expected to crimp  earnings and  lower share prices.
Banks should increase their non-performing loan  provisions  - bad-debt reserves as a percentage of problem loans - to at least 130 per cent, said China Banking Regulatory Commission chairman Liu Mingkang  in a statement.
For higher-risk lenders,  the ratio should be at least 150 per cent of  outstanding bad loans,  Mr Liu said.
At the end of last month, the average provision  at mainland banks was 115.3 per cent, up 74.1 percentage points from a year  earlier, according to the CBRC.
Analysts said the higher provisions  were necessary to ensure financial stability but  would hurt  bank earnings and  depress stock prices.
'Profit before tax at mainland banks could decrease by an average of 29.4 per cent as the ratio is raised from 115 per cent to 130 per cent,' said Zhang Hua, an analyst with United States-based consultancy Celent.
Mr Zhang based his estimate  on  a bad-loan  ratio - problem loans as a percentage of total loans - of 2.45 per cent at the end of last year and a banking sector profit-assets ratio of 1.25 per cent, according to the CBRC.
'For Shanghai Pudong Development Bank and China Merchants Bank, with  provision ratios at 191 per cent and 180 per cent respectively, the requirement will not affect their profit position,'  Mr Zhang said.
'But at  other banks, such as Industrial and Commercial Bank of China, the impact will be a lot bigger.'
ICBC's bad-loan  provision  was more than 120 per cent at the end of last year, the bank said.
Although the provisions  would put pressure on  earnings, banks would pay less tax, which would be positive for net profit, Mr Zhang said.
JP Morgan analyst Samuel Chen said that the requirement could reduce the earnings of leading listed mainland lenders by 6 per cent to 10 per cent.
Some banks have already  raised their provisions. Shenzhen Development Bank last week said its earnings for last year would plunge 77 per cent as it set aside 5.6 billion yuan (HK$6.36 billion) in bad-debt provisions and wrote off 9.4 billion yuan  in bad loans  in the fourth quarter.
The provision  level was raised from 48.28 per cent at the end of 2007, the lowest among mainland-listed banks, to 105 per cent  last year.
'The bank paid a heavy price to increase the provision,' said Haitong Securities analyst Qiu Zhicheng.  'The target is achievable for most banks as they were very profitable in the first half.'
Additional reporting by Natalie Chiu



Lenders told to raise provisions for soured debts