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The head of a mainland China bank has signalled confidence that the central government will loosen requirements for lenders’ bad-debt provisions, a move that could help them to report larger profits.
A reduction in the coverage ratio to about 120 per cent to 130 per cent of existing non-performing debt would be “reasonable” and “possible,” China Construction Bank chairman Wang Hongzhang said on the sidelines of an event in Singapore on Monday. The regulator “may differentiate among different banks on ratios”, he said.
Some of the mainland’s largest banks, which are due to report first-quarter results this week, have lost room to smooth out their earnings after letting their coverage ratios – a key swing factor in earnings reports – fall close to the minimum of 150 per cent. In the case of Construction Bank, the level fell to 151 per cent at the end of last year from 222 per cent a year earlier.
Construction Bank reported a 0.1 per cent increase in net income for 2015 after a 47 per cent jump in non-performing loans (NPLs).
Wang said any reduction in the coverage ratio would not have a big impact on Construction Bank’s earnings.
The State Council, China’s cabinet, had discussed lowering the coverage ratio and the China Banking Regulatory Commission would decide the timing and magnitude of any reduction, sources said in February. Some big banks had used a ratio of about 120 per cent for their 2016 budgeting, they said.
“Some big banks are probably torn between whether to breach the 150 per cent threshold or report a profit decline,” Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities, said last week. “For the first quarter, they can still manoeuvre a bit by cutting costs here and there, and end up with zero profit growth and still maintain the minimum NPL coverage ratio – but for the full year nobody can achieve both.”
Against the backdrop of a slowing economy, turmoil in the stock market and government measures to curb overcapacity in manufacturing, bad debt in the mainland’s banking industry jumped 51 per cent last year to 1.27 trillion yuan (HK$1.51 trillion), data from the bank regulator shows.
Bank of China will disclose first-quarter earnings on Tuesday, the first of the big four banks to report.
(SOUTH CHINA MORNING POST)
