BOCHK's strong profits combats its property loan weakness

The bad loans ratio, whilst rising in 2023, is expected to fall to 0.7% in 2024-2025.

Bank of China (Hong Kong) (BOCHK) can handle asset quality strains brought about by its property loan weakness, according to S&P Global Ratings.

The bank faces lingering pressure from its property loan book, particularly its exposure to the mainland Chinese real estate sector. Already, its non-performing loans ratio deteriorated to 1.04% in end-2023, from just 0.53% in end-2022.

This is still well below the industry average of 1.56%, however, and S&P projects that the ratio will drop in 2024-2025.

“We project BOCHK's NPL ratio at about 0.7% over 2024-2025 as it continues to reduce its mainland property exposure, which fell to 5.5% of the group's total loans at end-2023 from 6.1% at end-2022,” the ratings agency said in a commentary of the bank. 

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BOCHK’s profitability will also help cushion the property loan weakness. Profits are expected to remain resilient thanks to the bank’s strong margins as interest rates remain elevated. 

Return on average assets (ROAA) is forecasted to be at 1%-1.1% between 2024-2025, rising from the 0.98% ROAA in 2023.

Provision coverage of stage 3 loans was adequate at 83%, S&P said.