Lenders brace for surge in bad loans
After a sharp increase in bad loans in the third quarter, analysts warn of worse to come amid worries over banks' asset quality
Bad loans are expected to rise further at mainland banks in the coming months after a sharp increase in the third quarter hit lenders' profitability.
The nine Hong Kong-listed mainland banks reported an average increase in non-performing loans (NPLs) of 45.5 billion yuan (HK$57.8 billion) in the quarter, 4.2 per cent more than the previous quarter, according to their financial reports released this week.
Among them, the Big Four - Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China and Bank of China - posted the largest increase in NPLs in at least three years, with soured loans up 3.5 per cent to a combined 329.4 billion yuan.
"Although reported NPL ratios were largely steady, the high gross NPL formation continued," said Barclays Capital analyst May Yan. "Going forward, NPLs will rise at a measured pace, with banks accelerating write-offs and packaging NPL disposals."
The average NPL ratio of the nine listed lenders climbed 0.01 percentage point to 0.92 per cent over the quarter. However, the real asset-quality situation was more severe than the NPL ratio suggested, analysts said.
For example, ICBC, the world's largest and most profitable lender, reported NPLs were up 7 per cent from the second quarter.
But Citi analyst Simon Ho said: "We estimate the underlying NPL formation of ICBC, after adding back the estimated write-offs, is 15 per cent quarter on quarter. Despite a high underlying NPL formation, the provision charge looks low."