China Minsheng Banking Corp said outstanding loans to local government financing vehicles continued to drop in the third quarter and it expected capital levels to improve when it completes its latest bond and equity issuance. The bank said at a post-results briefing yesterday that net profit for the quarter rose 80.34 per cent from a year earlier to 7.47 billion yuan (HK$9.13 billion). Outstanding loans to the so-called financing vehicles - companies set up to borrow from banks on behalf of local governments - fell to about 160 billion yuan from 190 billion yuan at the start of the year, said Shi Jie, the bank's director for credit assessment. Shi added that less than 10 per cent of such loans had half or no cash-flow coverage. More than 40 billion yuan of these loans come due next year. For all the due loans that were rolled over this year, Minsheng requested the companies to inject assets such as land or cash. Those that failed to meet the requirements were written off, he said. Minsheng's asset quality remained stable as its non-performing loans dropped by 200 million yuan from the end of last year to 7.14 billion yuan, lowering the non-performing loan ratio by seven basis points to 0.62 per cent. Capital adequacy ratio, a measure of capital against risk weighted assets, stood at 10.94 per cent at the end of September. Core capital, mainly consisting of equity, reached 7.89 per cent when measured against risk-weighted assets, a calculation of bank assets, including loans, according to creditworthiness. Zhang Changlin, the bank's general manager for asset liability management, said the bank would see an improvement of 2 percentage points in the capital adequacy ratio after it raised 29.3 billion yuan through a public offering of convertible bonds on the mainland and an equity issue in Hong Kong. The bank is waiting for approval from the China Securities Regulatory Commission. However, the bank's capital levels could be hurt by the banking regulator's proposed move to recalculate certain risk-weighted assets. The new regulations are expected to be phased in next year. Sheng Nan, an analyst at CCB International Securities, said the impact of the new regulations was still unclear. He expects some banks' capital adequacy levels to be affected. Minsheng's third-quarter net interest margin, a measure of lending profitability, was 3.14 per cent for the third quarter and 3.04 per cent for the first nine months, up 12 basis points from the same period last year.