Chinese banks’ bad loans increased for a fourth straight quarter, the longest streak of deterioration since the data became available in 2004, highlighting pressures on profit growth as the economy weakens.
Non-performing loans rose by 22.4 billion yuan ($3.6 billion) in the three months ended Sept. 30, to 478.8 billion yuan, the China Banking Regulatory Commission said in a statement on its website today. Bad loans increased at all types of institutions, including the largest state-owned lenders, rural banks and foreign banks, the regulator said.
China’s banking system is grappling with rising defaults and weaker loan demand after economic growth decelerated for a seventh quarter. Combined net income growth at the nation’s 3,800 lenders slowed to 14 percent in the third quarter from 23 percent in the second, the regulator said today.
“We expect banks’ bad loans to climb mildly for another quarter because borrowers normally face a liquidity squeeze before year end,” said Xie Jiyong, a Shanghai-based analyst at Capital Securities Corp. “The trend will stabilize early next year if the economy starts to pick up and companies’ repayment ability improves.”
Shares of Hong Kong-listed China banks are trading at an average 5.5 times their forecast profit for 2013, compared with 10 times for the benchmark Hang Seng Index.
Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, fell 1 percent to HK$5.06 at 1:10 p.m., narrowing this year’s gain to 9.8 percent. China Construction Bank Corp., the nation’s second largest, lost 1.4 percent, while Agricultural Bank of China Ltd. declined 1.5 percent.
Chinese commercial banks’ delinquent obligations may rise 10 percent this year and accelerate in 2013 if concern that inflation is rebounding leads authorities to tighten monetary policy, according to China Orient Asset Management Corp. The company is one of four state-owned asset managers established in 1999 to take over trillions of yuan of bad loans from the country’s largest lenders.
Non-performing loans, or those overdue for at least three months, accounted for 0.95 percent of banks’ total advances as of September, up from 0.94 percent in June, according to the regulator.
Chinese banks’ net interest margin, a measure of lending profitability, widened to 2.77 percent in the third quarter from 2.73 percent in the second, according to today’s statement. Their capital adequacy ratio rose to 13.03 percent as of Sept. 30, from 12.91 percent in June.
Banks extended 505.2 billion yuan of local-currency loans in October, down 14 percent from a year earlier, the central bank said this week. Weaker-than-forecast credit expansion may limit a rebound in economic growth as the ruling Communist party anoints new leaders.
— With assistance by Jun Luo