China’s Big State-Owned Banks Saw Rising Defaults, Shrinking Loan Profitability In 2012
By Moran Zhang | March 28 2013
The change to interest rates is just one of a number of challenges facing big state-run Chinese banks.
China's economy expanded 7.8 percent in 2012, its slowest pace for 13 years. The cooling growth has raised expectations that the banks may see a spike in bad loans, largely stemming from a 4 trillion yuan stimulus package in 2009 and over-investment in the real estate and infrastructure sectors.
The China Banking Regulatory Commission said earlier this month that Chinese banks have reported a fifth consecutive quarterly rise in the value of their bad loans. Bad loans rose by 64.7 billion yuan to stand at 492.9 billion yuan at the end of 2012.
Bad loans have mostly been concentrated in the Yangtze River Delta, which includes Shanghai and the export-oriented city of Wenzhou. The region is known as the hub for small and medium-size manufacturers and exporters, which took a hit from a slowing economy and fragile global market conditions.
Overdue loans, an indicator for future bad loans, rose at all five banks as of Dec. 31 last year.
Overdue loans rose by 20.08 billion yuan to 77.08 billion yuan by the end of last year, accounting for 1.03 percent of China Construction Bank’s total loans extended in 2012, up from 0.88 percent by the end of 2011, the bank said. The bank raised its provisions by 29.85 percentage points to 271.29 percent last year, according to its annual report.
Meanwhile, overdue loans at the Agricultural Bank of China totaled 87.91 billion yuan, accounting for 1.4 percent of total loans extended in 2012, up from 1.3 percent in 2011. Bank of China's overdue loans totaled 74.90 billion yuan, up from 68.130 billion yuan in 2011.
Industrial and Commercial Bank of China’s overdue loans rose to 62.1 billion yuan, although they accounted for 0.71 percent of total loans it extended last year, down from 0.74 percent in 2011. Overdue loans at Bank of Communications increased by 34.3 percent to 20.45 billion.
While most analysts don’t expect an imminent banking crisis in China, rising defaults and shrinking loan profitability are serious threats to the country’s banking system.