Bank of China's bad-loan buf­fer sinks closer to min­i­mum al­lowed

The Pak Banker - - FRONT PAGE -

Bank of China Ltd. ground out a sec­ond straight quar­ter of 1 per­cent profit growth and its earn­ings state­ment pointed to a loom­ing drag from the need to set aside more money for bad loans.

The len­der's bad-loan cov­er­age ra­tio, a mea­sure of pro­vi­sions for non­per­form­ing loans, de­clined to 157 per­cent as of June 30 from 188 per­cent at the be­gin­ning of the year, ac­cord­ing to the com­pany's ex­change fil­ing on Fri­day. The min­i­mum level al­lowed is 150 per­cent.

That's the low­est among Chi­nese banks that have re­ported first-half earn­ings and points to the toll that a ris­ing tide of bad loans will take on fu­ture earn­ings. Bank of China is the third of the big four lenders to re­port this week, af­ter In­dus­trial & Com­mer­cial Bank of China Ltd. and Agri­cul­tural Bank of China Ltd. posted sec­ond-quar­ter earn­ings that were al­most flat from a year ear­lier. China Con­struc­tion Bank Corp.'s earn­ings are due on Sun­day.

At a press brief­ing in Bei­jing, Bank of China Pres­i­dent Chen Siqing said that the Chi­nese econ­omy faces down­ward pres­sure in the sec­ond half and that in­ter­e­strate lib­er­al­iza­tion and cuts to bench­mark rates will put pres­sure on bank mar­gins. The len­der's net in­ter­est mar­gin was 2.18 per­cent as of June 30, down from 2.27 per­cent a year ear­lier.

Net in­come at Bei­jing-based Bank of China rose to 44.9 bil­lion yuan ($7 bil­lion) in the three months ended June 30, ac­cord­ing to Fri­day's state­ment. Its soured debt rose 24 per­cent from the be­gin­ning of the year to 125 bil­lion yuan as of June 30.

Shares of Bank of China have lost 19 per­cent in Hong Kong this year, com­pared with an 8 per­cent de­cline in the bench­mark Hang Seng In­dex.

Chi­nese banks' av­er­age bad- loan cov­er­age ra­tio stood at 198 per­cent as of June 30, ac­cord­ing to the China Bank­ing Reg­u­la­tory Com­mis­sion, which re­quires lenders to main­tain pro­vi­sions of at least 150 per­cent of the value of soured debt or 2.5 per­cent of to­tal credit, which­ever is higher.

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