Bad loans to weigh on Chinese banks' first half profits
Lenders' earnings seen growing 10 per cent as non-performing loan ratio rises to 0.93 per cent
Mainland banks are likely to post decent first-half profits this year but an increase in overdue loans is a cause for concern.
The nine Hong Kong-listed mainland banks are expected to report about 10 per cent growth in net earnings when they start releasing results this month, according to analysts.
Their profits are unlikely to boost their stock prices with impairment losses from rising bad loans set to dent sentiment.
"Chinese authorities' tough stance on industrial overcapacity will initially mean rising overdue loans, and, over time, rising non-performing loans," analysts at Nomura Securities said in a research note. "This will be a gradual process since NPL recognition and before-tax provisioning of bad debts is a somewhat more cumbersome procedure in China compared to developed markets."
Regulators have asked lenders not to extend new loans to sectors hit by overcapacity, such as steel and cement. That means companies will struggle in the case of a prolonged economic slowdown and have problems repaying existing loans.
Analysts at Barclays Capital estimate non-performing loans at the end of June rose on average nearly 13 per cent among the Hong Kong-listed mainland banks from six months ago.
They forecast the non-performing loan ratio of those banks to have climbed two basis points to 0.93 per cent.