(Bloomberg) — China’s protracted property downturn is eroding the balance sheets of the nation’s largest state banks as their bad loans creep up.
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Bank of Communications Co. reported Wednesday that its property bad loan ratio jumped to 4.99% at the end of last year from 2.8% a year earlier. While the balance of its overdue mortgages slipped, the special mention loans for the segment — a leading indicator of soured loans — jumped 23% to 9.88 billion yuan ($1.4 billion).
Bigger rival Industrial & Commercial Bank of China Ltd. saw its bad loans from residential mortgages rise 9.6% to 27.8 billion yuan, according to a Wednesday filing. In the corporate loan segment, its property non-performing loan ratio was the highest among all sectors.
Both banks reported scant profit gains as interest margins narrowed. Bocom dropped as much as 4.9% in Hong Kong Thursday morning, and ICBC fell as much as 2.5%.
The results offered a view into how the nation’s largest state-owned banks fared in the past year as Beijing tasked them with duties to help pump up the domestic economy as well as rescue its debt-laden property developers and local governments. At the same time, the slowing economy has put downward pressure on interest rates.
The state banks have so far heeded Beijing’s call to lower lending rates and step up financing support for developers.
Bocom said China’s earlier cuts on loan prime rates and its reductions on outstanding mortgage interests hurt interest margin. The bank also underwrote 56.5% more real estate corporate bonds last year to meet the financing needs of developers, it said in its filing. ICBC maintained “stable and orderly” issuance of property loans and boosted financial support for rental housing, according to its statement.
China’s home price declines deepened in February in both new and used home segments, underscoring the challenge for authorities to salvage the beleaguered market.
ICBC has increased efforts to manage risks associated with real estate developers and projects, according to Wang Jingwu, the bank’s vice president. The non-performing loan ratio decreased by 0.77% from the beginning of the year, with sufficient provisions provided, he said.
As of the end of 2023, the balance of real estate loans and mortgages at ICBC was more than 7 trillion yuan, accounting for more than a quarter of their loan book.
Bocom’s Vice President Yin Jiuyong said the pressure to keep asset quality in check remains “immense” this year as it will take time for home sales and developers’ liquidity conditions to recover. Overall risk from its property exposure is still manageable, he said at an earnings briefing.
The big lenders’ profitability and asset quality are in focus as investors await to gauge their resilience in an economy that’s heavily reliant on bank lending to regain momentum. Combined profits at China’s commercial banks rose 3.2% to 2.38 trillion yuan last year, the slowest pace since 2020, according to official data. Outstanding bad loans climbed to a record 3.23 trillion yuan.
China Construction Bank Corp., Bank of China Ltd. and Agricultural Bank of China Ltd. are scheduled to announce their annual results on Thursday.
–With assistance from Chongjing Li.
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