ICBC More Than Doubles Bad-Loan Provisions as Economy Cools

  • World's biggest bank reports 0.5% quarterly profit gain
  • Lender's earnings underscore weak bank reporting season

Industrial & Commercial Bank of China Ltd., the world’s largest lender by assets, reported a 0.5 percent increase in quarterly profit from a year earlier as it more than doubled provisions for bad loans.

Net income climbed to 72.7 billion yuan ($11.5 billion) in the three months ended Sept. 30, a Hong Kong exchange filing showed Friday. That was close to the 72.8 billion yuan average of three analyst estimates compiled by Bloomberg.

The lender set aside 19.3 billion yuan of provisions for bad loans in the quarter, more than double the amount a year earlier. Its bad-loan ratio stood at 1.44 percent of total credit, up from 1.4 percent at the end of June.

“ICBC’s earnings growth in the fourth quarter may be even slower or they may even see a profit decline,” said Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research. “The bad-loan situation will only deteriorate over the next year.”

Credit Target

At a press briefing in Beijing in August, ICBC President Yi Huiman indicated that the lender might need to abandon a target of keeping its nonperforming loan ratio at 1.45 percent this year, citing “severe” conditions.

While the banking industry’s official nonperforming loan ratio is 1.5 percent, analysts say the number is understated. BNP Paribas SA estimates 9 percent for Chinese banks listed in Hong Kong, while Autonomous Research says the level could be closer to 20 percent.

An economic slowdown is weighing on profits just as interest-rate cuts put pressure on margins and the government deregulates finance to intensify competition. Bank of China Ltd., another of the nation’s big-four banks, on Thursday reported its first quarterly profit decline since the global financial crisis.

In a sign of how Chinese banks’ profit growth has waned, ICBC’s net income has fluctuated between gains and declines over the past four quarters, growing a maximum of 1.4 percent.

ICBC’s result came after China Construction Bank Corp. reported earnings that were little changed from a year earlier, while Agricultural Bank of China Ltd., another of the big-four banks, returned to profit growth with a 1 percent gain.

Bank of Communications Co. earlier on Friday reported a 14.7 billion yuan profit. That compared with the 15.4 billion-yuan average of analyst estimates compiled by Bloomberg.

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