Chinese A-Share Banks Lift Provisions as NPL Ratio Rises at Half of Listed Lenders

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China’s listed banks are moving to bulk up their provisions in anticipation of a rise in non-performing loans (NPL) in the wake of the COVID-19 pandemic.

The first half reports of China’s 36 A-share banks indicates that 18 of them saw a rise in their NPL ratios compared to the end of last year, while for 4 of them the readings held steady and 14 posted declines.

Chinese banking regulators said that new NPL’s primarily came from sectors including transit, wholesale retail, catering and accommodation and culture and tourism.

In the first half of 2020 com­mer­cial banks also posted net prof­its of one tril­lion yuan, for a YoY de­cline of 9.4%, ac­cord­ing to data from the China Bank­ing and In­sur­ance Reg­u­la­tory Com­mis­sion (CBIRC). 

Analysts said that in addition to measures to reduce lending costs in response to Beijing’s call for the Chinese finance sector to “sacrifice” profits for the sake of the real economy, a key factor in the profit decline has been the expansion of NPL disposals and increases in provisions.

As of the end of the first half 22 listed banks had seen an increase in their provisions coverage ratio compared to the end of last year, with Bank of Hangzhou, Zhangjiagang Rural Commercial and Bank of Suzhou seeing increases of 67.07, 45.77 and 39.84 percentage points respectively.

Five listed banks had provisions coverage ratios of over 400%, including Bank of Ningbo, Bank of Changsha, China Merchants Bank, Bank of Nanjing, and big state-owned bank Postal Savings Bank of China.

Yao Zhongyou (姚仲友), vice-president of China Everbright Bank, said to China Securities that it would continue to maintain a stable provisions policy, increase provisions allocations, expand disposal of NPL’s, and drive the orderly clearance of risky loans.

Yao foresees a large-scale rise in provisions increases and disposal and write offs of NPL’s in 2020 compared to last year.

Zhang Qingsong (张青松), president of big state-owned lender Agricultural Bank of China, said that further downward pressure on profit growth would be unavoidable in the second half due to the impacts of the COVID-19 pandemic.

Liao Lin (廖林), vice-president of ICBC, said that in the second half the extensions on repayments of principal and interest for loans are likely to put pressure on asset quality, but he had confidence that this asset quality would remain controllable and stable.

Guo Xinshuang (郭新双), president of Postal Savings Bank of China, said that the next step would be to focus on sectors impacted by the pandemic and strengthen asset inspections of asset quality as well as NPL disposal, to effective control risk costs.

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