Two of China’s Biggest Banks Hold Back Rising Tide of Bad Loans

Two of China's Biggest Banks Hold Back Bad-Debt Tide
  • Bad-credit ratios stay unchanged at Construction Bank, Bocom
  • Analyst cautions it’s too early to see a ‘tipping point’

Two of China’s biggest banks -- China Construction Bank Corp. and Bank of Communications Co. -- reported that their bad-loan ratios had stopped climbing after previously rising like clockwork.

The pair -- the nation’s No. 2 and No. 5 banks, respectively -- also managed in the second quarter to keep their bad-debt provisions above a regulatory minimum of 150 percent of existing soured credit. The figures were in half-year earnings reports released Thursday.

Investors are looking for any signs that China’s banks are getting on top of their bad loans, estimated by analysts to be much higher than the levels officially reported. At Commerzbank AG, analyst He Xuanlai said the numbers were an encouraging signal, but it was too early to see a “tipping point.”

Likewise, Bank of Communications executives cautioned that it was too early to say the worst was over.

While bad-debt risks are “controllable,” the situation remains severe, President Peng Chun said at a briefing in Shanghai. Yang Dongping, the lender’s chief risk officer, said that nonperforming loans were rising faster in some places -- such as Shandong, Tianjin and Fujian -- than others.

Losing Streak

Before the latest numbers, Construction Bank’s nonperforming loan ratio had climbed every quarter since late 2013, while that of Bank of Communications had increased steadily from 2012. Construction Bank’s ratio stood at 1.63 percent as of June 30, while Bank of Communications was at 1.54 percent.

Bank of Communications’s ratio of “special mention” loans, a term for credit in danger of going bad, fell from six months earlier. The lender’s loans overdue for more than 90 days declined for the first time since 2011, based on half-yearly data.

Construction Bank’s quarterly profit rose 0.9 percent from a year earlier, while Bank of Communications’s net income increased 1.3 percent.

— With assistance by Alfred Liu, and Jun Luo

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