Bank of China bad loans, capitalization ‘stable’ amidst real estate woes: S&P

BOC’s NPL ratio for mainland real estate loans rose 62 basis points in H1.

The Bank of China can withstand stress from property woes and rural regions in China, according to S&P Global Ratings.

Despite rising defaults from Chinese property developers, the bank’s non-performing loans (NPL) and special mention loan ratios remained broadly stable at 1.34% and 1.29%, respectively, thanks to the bank's diversified portfolio, S&P said.

BOC's NPL ratio for mainland real estate loans increased 62 basis points in the first half of 2022 to 5.67%. Mainland real estate loans accounted for 4.3% of the group's loan book.

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Capitalization is also likely to remain adequate, given its reduced risk appetite and capital issuance. The bank's risk-weighted assets increased 1.7%, less than its loan growth of 7.9%, in the first half of the year.

Meanwhile, the release of excess provision coverage should help mitigate pressure on BOC's profitability, S&P said. NPL coverage ratio is at 183% as of end-June, still well above the regulatory requirement to lower credit costs.