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Bank of Communications, China Merchants Bank report increasing bad loans amid property crisis

Two major Chinese banks reported a growing number of non-performing loans (NPLs) on their books in the first half of the year as China's worsening property-market crisis puts increasing strain on lenders.

Both Bank of Communications, China's sixth-largest commercial bank in terms of assets, and China Merchants Bank reported rising NPLs, joining China Construction Bank (CCB) and Bank of East Asia, which issued similar reports on Thursday.

Bank of Communications on Friday evening reported its NPLs increased by 6.44 billion yuan (US$821 million) to 104.96 billion yuan in the first half compared with the end of 2022. The lender's bad loan rate for loans exposed to the real estate industry rose by 0.59 percentage points to 3.39 per cent in the corresponding period.

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"We have noticed rising risks from the property sector ... and the situation of controlling the risks from the property sector remains serious," a spokesperson from the bank said in a briefing. Though the sector is on the way to a gradual recovery, some developers are still in the process of fighting against the risks, the spokesperson said.

"Amid the sophisticated and challenging international environment, [the] domestic economy is facing new difficulties and challenges," the bank said in an exchange filing. "The fundamentals sustaining China's sound economic growth in the long run stay unchanged."

China Merchants Bank's NPLs increased by 2.64 billion yuan to 60.64 billion yuan compared with the end of 2022.

The bank's overall NPL ratio dropped by 0.01 percentage points to 0.95 per cent in the first half of the year, but the NPL ratio for loans exposed to the property market rose 1.44 percentage points to 5.52 per cent.

"The non-performing-loan ratio of the group in terms of the real estate, water conservancy, environment and public utilities management as well as transportation, storage and postal industries increased due to the risk exposure of heavily-indebted real estate enterprises and individual corporate customers with poor management," the bank said in an exchange filing.

Goldman Sachs analysts forecast that the distress in China's property market could trigger 1.9 trillion yuan of credit losses, based on a 10 per cent loss rate derived from recent cracks in the bond market. Banks could shoulder 1.2 trillion yuan or 61 per cent of the losses, while trust firms suffer 28 per cent and insurers 5 per cent, they forecast.

Bank of East Asia, Hong Kong's largest family-owned lender, said on Thursday that its NPL ratio in China rose by 0.4 percentage points to 3.15 per cent of its total lending in the first half.

China Construction Bank reported on Thursday that its bad-loan exposure to the real estate sector jumped 18 per cent over the first six months of the year to 39.6 billion yuan versus 33.6 billion yuan at the end of December.

CCB extended 833 billion yuan of loans to the real estate sector, an increase of 8.1 per cent from the end of 2022 as it pledged to support developers.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.