Chinese banks reported almost no growth in their third-quarter profits, extending their weak performance in the first half, mainly because of higher bad debt charges.
Bad loan ratios rose at all the state banks, and coverage for non-performing loans slipped further.
Many banks showed signs of stabilized credit quality, with third-quarter bad debts growing at a slower pace than in the first half.
State banks took charges totalling 85 billion yuan (US$13 billion) for bad loans in the third quarter, up 47 percent from a year earlier, gobbling up earnings growth.
The latest provisions added to aggregate contributions of 160 billion yuan in the first half.
The 27 billion yuan increase in impairment losses is equivalent to 6.9 percent of their combined pre-provision profits and 8.8 percent of third-quarter pretax profits.
Growth in pretax profits would have ranged from 4.2 percent to 13.6 percent if these charges had stayed unchanged from the third quarter of 2014.
They also reported lower bad debt coverage in the third quarter than in the previous three months, despite a sharp increase in provision charges.
The ratios at ICBC, Bank of China and Bank of Communications are near the regulatory minimum of 150 percent, suggesting a risk of more sizable loan charges in the future.
A slowdown in non-performing-loan growth may relieve some of the provision risk.
State banks’ bad debts rose in a range of 3.2 percent to 12.3 percent in the third quarter, a slower pace on average than in the previous two quarters, as the People’s Bank of China extended easing.
Over the past month, China’s state bank shares dropped between 1 percent and 4 percent, slightly underperforming the Hang Seng Index and the H-share index.
This could reflect market disappointment over third-quarter earnings growth.
The views expressed in this article are those of Francis Chan, a senior banking analyst at Bloomberg Intelligence.
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