Chinese Banks’ Bad Loan Ratios Shrink as Defaults AvertedBloomberg News
China’s largest banks posted a decline in bad-loan ratios for 2012 amid the slowest economic expansion in 13 years, signaling policy makers may have averted a surge in defaults.
The gauge shrank to 1.33 percent at Agricultural Bank of China Ltd., the nation’s third-largest by market value, from 1.55 percent in 2011, while net income increased by 19 percent, the Beijing-based lender said yesterday. At Bank of China Ltd., the fourth-largest, non-performing loans dropped to 0.95 percent of the total from 1 percent, and profit climbed 12 percent.
Shares of both banks rose today as the shrinking bad-loan ratios assuaged investors’ concern that earnings could slip this year amid defaults by borrowers including solar manufacturer Suntech Power Holdings Co. China’s economic growth may accelerate to 8.1 percent this quarter, according to the median estimate of 32 analysts surveyed by Bloomberg News.
“The biggest pressure is behind us,” said Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp. “Asset quality will remain stable.”
Bank of China rose 2.8 percent to HK$3.65 as of 9:47 a.m. in Hong Kong trading. Agricultural Bank gained 1.1 percent to HK$3.82.
Agricultural Bank President Zhang Yun said yesterday Chinese banks’ non-performing loans are at a “manageable” level. Bank of China President Li Lihui said the trend will stabilize even as bad debts may go up “slightly” this year.
The outstanding amount of bad loans at Chinese lenders increased for a fifth straight quarter in the last three months of 2012, the longest deterioration streak since data became available in 2004, to 492.9 billion yuan ($79 billion) as of Dec. 31, the China Banking Regulatory Commission said March 1. The ratio of soured debt to total loans was unchanged at 0.95 percent for December compared with three months earlier.
Agricultural Bank and Bank of China joined the larger China Construction Bank Corp. in maintaining double-digit profit growth as they boosted lending amid government efforts to revive the world’s second-largest economy.
Li Keqiang, who took over as China’s premier this month, said 7.5 percent annual growth is needed to meet targets for 2020, which include doubling per capita income. Li extended Zhou Xiaochuan’s record tenure as central bank governor, a signal the nation’s new leaders may deepen a shift toward a more market-driven financial system.
“Chinese banks’ operating environment this year is slightly more positive than 2012 as the economy has recovered and monetary policy has eased,” said Patrick Pun, director of global investment strategy at Haitong International Securities Co. “Loosened monetary policy would spur lending and is beneficial to banks.”
Shares of China’s nine Hong Kong-listed banks gained 14 percent last year on average. Still, they continue to trade near record-low valuations. Bank of China has climbed 5.5 percent this year while Agricultural Bank is little changed.
Bank of China Ltd.’s 139.4 billion yuan of profit last year beat the 132.6 billion-yuan average estimate of 31 analysts compiled by Bloomberg. Agricultural Bank’s net income of 145.1 billion yuan was in line with a 148.7 billion-yuan consensus estimate.
Bank of America Corp., whose market value of about $134 billion compares with about $132 billion for Bank of China, posted net income of $4.19 billion last year, approximately one-fifth of the Chinese lender’s.
Bank of China’s net interest margin, a measure of profitability, expanded to 2.15 percent from 2.12 percent in 2011. The gauge at Agricultural Bank narrowed to 2.81 percent last year from 2.85 percent in 2011, according to yesterday’s statement.
Founded in 1912 by Sun Yat-sen, known as the father of modern China, Bank of China held a monopoly on the nation’s foreign-exchange dealings and overseas banking from 1949 to 1994. The lender today has the biggest overseas operations of any Chinese bank, accounting for about 24 percent of its assets at the end of June, data compiled by Bloomberg show.
Xiao Gang, who led Bank of China for 10 years, resigned March 17 and will replace Guo Shuqing as head of the China Securities Regulatory Commission.
— With assistance by Jun Luo, and Stephanie Tong