Bank of China Slumps as Lender Lags Peers in Taming Bad Loans

  • Lender’s NPL ratio rose in third quarter as rivals’ improved
  • Stock downgraded at Bocom International, Huatai Securities

A Bank of China branch in Chengdu.

Photographer: Qilai Shen/Bloomberg

Bank of China Ltd. shares slumped the most in almost four months in Hong Kong after the lender failed to report the same improvements in asset quality as its rivals.

The stock lost 3.2 percent to HK$3.90 as of 11:16 a.m. local time, paring its rally this year to 13 percent. Bocom International Holdings Co. and Huatai Securities Co. downgraded Bank of China after its results Monday revealed a jump in impairment losses and a higher nonperforming-loan ratio. Its biggest rivals reduced their NPL ratios.

“As a whole, Bank of China’s results in the third quarter didn’t sustain from the strong recovery in the second quarter,” Bocom International analysts Wan Li and Hannah Han wrote in a report. “The improvement trend of asset quality is weaker than peers.”

Bank of China reported an NPL ratio of 1.41 percent as of Sept. 30, up from 1.38 percent three months earlier. Its impairment losses in the third quarter jumped 63 percent, eroding most of the gains generated by lending income.

The numbers were a blot on what was regarded by analysts as a broadly positive earnings season for the country’s big banks. The Big Four -- including Bank of China -- all reported double-digit increases in lending income in the third quarter, validating in part some of the rally that had driven their valuations to a two-year high this year.

Industrial & Commercial Bank of China Ltd. shares fell 1.7 percent on Tuesday, while China Construction Bank Corp. lost 0.6 percent. Agricultural Bank of China Ltd. gained 1.4 percent.

“People are selling shares after a recent rally of Chinese banks,” said Marco Yau, a senior analyst at CEB International Investment Corp. “Investors have been expecting an improvement in asset quality and a rebound in margins since the beginning of the year and that has supported the momentum.”

S&P Global Ratings Senior Director Qiang Liao discusses China’s banking sector.

(Source: Bloomberg)

The lenders have benefited from some of the government efforts since April to curtail risks from China’s almost $30 trillion of debt. As authorities moved to increase policy coordination among the country’s regulators, they also sought to curb interbank borrowings -- that drove up rates and boosted margins at the big banks, which are net lenders into that market.

Read more: A QuickTake on how China is getting serious about financial risk

ICBC, the world’s largest lender by assets, said its net interest margin rose to 2.17 percent by the end of September, compared with 2.16 percent in the first half, while Bank of China and CCB also reported increases. Agricultural Bank didn’t disclose its latest NIM, which is a measure of lending profitability.

Here are the headline third-quarter numbers reported by the Big Four:

  • ICBC: Net income rose 3.3% to 75 billion yuan ($11.3 billion) from year earlier
  • CCB: Net income up 4.1% to 62.9 billion yuan
  • Bank of China: Net income little changed at 41.8 billion yuan
  • Agricultural Bank: Net income gained 4.9% to 51.4 billion yuan

— With assistance by Alfred Liu, and Angus Whitley

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