Leading banks in China report jump in property bad debt

INDUSTRIAL and Commercial Bank of China (ICBC), the world’s largest commercial lender by assets, said soured lending to the real estate sector in the first half of this year rose 15 per cent.

Agricultural Bank of China (AgBank), the country’s third-largest commercial lender by assets, said on Monday that the value of its property bad loans rose 19 per cent, also in the first half of the year.

ICBC reported 38.8 billion yuan (S$7.83 billion) of non-performing loans (NPL) at the end of June, compared with 33.8 billion yuan at the end of last year, according to its first-half earnings report on Tuesday (Aug 30).

This means that the NPL ratio for the real estate sector stood at 5.47 per cent, compared to an average for the bank of 1.41 per cent.

The lender is the third of China’s largest banks to report growing bad debt in the real estate sector, amid a gloomy first half in which rising developer defaults halted housing projects, leading to mortgage boycotts.

Despite this, ICBC’s net profit grew 4.9 per cent year-on-year in the first half of this year.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

Profit was 171.5 billion yuan (S$34.6 billion)in the 6 months through June, compared with 163.47 billion yuan in the same period a year earlier, the bank said in a filing on Tuesday.

The data implies a second quarter net profit of 80.9 billion yuan, up 4 per cent from a year earlier, Reuters calculations show.

The bank said its net interest margin - a key indicator of bank profitability - was 2.03 per cent at the end of June compared to 2.10 per cent at the end of March.

It reported a 1.41 per cent non-performing loan ratio at the end of the second quarter compared with 1.42 per cent from the end of the previous quarter.

AgBank’s non-performing loan ratio for the sector hit 3.97 per cent at the end of June, compared with the bank’s overall NPL ratio of 1.41 per cent, it said.

Despite this, the bank would continue to support lending to the property sector.

“We will not blindly recall, suspend or suppress loans,” AgBank Vice President Zhang Xuguang told a press conference after the bank’s half-year results.

“And we will support and cooperate with local governments to ensure the delivery of property projects,” he added.

Smaller peer Bank of Communications on Friday warned of liquidity risks in the Chinese property sector amid a gloomy first half in which rising developer defaults halted housing projects, leading to mortgage boycotts.

Property investment, home sales and new construction are plummeting as the problems scare off potential buyers.

AgBank Vice President Lin Li said 1,112 property projects risk being unfinished, involving 1.23 billion yuan of overdue mortgage payments, accounting for 0.023 per cent of the lender’s total outstanding mortgages.

Property NPLs hit 33.5 billion yuan at the end of June, up from 28.2 billion yuan at the end of last year, according to the bank’s half year report.

Despite property sector problems and Covid-19 lockdowns, AgBank’s first half net profit rose 5.5 per cent from a year earlier to 128.9 billion yuan, the bank said.

The bank said its net interest margin - a key indicator of bank profitability - was 2.02 per cent at the end of June, compared with 2.09 per cent at the end of March, though it warned at the press conference that the margin was likely to fall further in the second half.

Its overall 1.41 per cent non-performing loan ratio at the end of the second quarter was unchanged from the end of the previous quarter. REUTERS