Chinese megabanks caution against bad loans as year-end profits take hit

Lenders also sharply increased provisions for future bad debt.

Reuters reports that China's megabanks warned that the spectre of bad loans and shrinking margins threatens to spread across the industry after three of the country's top state banks posted their weakest quarterly profit growth in two years.

For the first time since Q3 2016, the country’s biggest bank by assets, Industrial and Commercial Bank of China’s (ICBC) saw a flat growth net profit of $8.63b (RMB58.05b) in Q4. Meanwhile, Agricultural Bank of China (AgBank) and China Construction Bank (CCB) saw profits drop by 5.4% and 1% respectively The year-end earnings of Bank of China also slowed 0.3%.

Also read: Chinese megabanks extend profit decline as credit boom fades

Although non-performing loan (NPL) ratios edged down by 0.01 percentage points for the megabanks, the lenders sharply increased provisions for future bad debt. ICBC lifted provisions to 176% of its non-performing loans at end-December from 154% a year earlier; CCB’s ratio rose to 208% at end-December from 171% a year earlier. AgBank’s ratio rose to 252% from 208% a year ago, and the ratio of allowance for loan impairment losses to NPLs surged 22.79 percentage points at BoC over the same period.

“We deeply feel it’s quite difficult to maintain the low bad loan level. There are external factors, our own reasons, problems with multi layers of local governments and other pressure,” said Xu Yiming, CCB’s chief financial officer. “Do not think we are doing so well with 1.46 percent NPL ratio. It is very fragile. Once the environment changes, it can increase.”

Here’s more from Reuters.