China’s Bank of Communications warns of developers’ bad debts as profit dips, ET RealEstate
BEIJING | SHANGHAI: China‘s Bank of Communications Co Ltd (BoCom) reported a 5.17% fall in second-quarter net profit on Wednesday, while warning of more bad debt from developers.
Chinese banks have been facing a squeeze on their profitability as they have been nudged to lower lending rates in order to stimulate weak loan demand amid a slowing economy.
Meanwhile, China’s property firms also remain under pressure amid subdued sales following a crisis in the sector.
“Risks in key areas of real estate cannot be ignored,” said BoCom President Zhang Baojiang.
The bank’s Chief Risk Officer Liu Jianjun said the cash flow of some real estate firms has not fully recovered, so BoCom “still faces certain pressures from non-performing loans in related lending businesses”.
BoCom’s non-performing loan (NPL) ratio was 1.32% at the end of June, flat compared to the end of March.
Lending to local governments faces periodic default risks, while bad loans in BoCom’s retail business were up, Liu added.
State-owned BoCom booked net profit of 20.3 billion yuan ($2.85 billion) in the three months to the end of June, down from 21.41 billion yuan in the same period last year, Reuters calculations based on its first-half results showed.
BoCom said its first-half net profit fell 1.63% to 45.29 billion yuan, while its net interest margin (NIM) – a key gauge of profitability – was 1.29% at the end of June, compared to 1.27% at the end of March.
Despite this, the lender set out future expectations of margin pressure.
“As efforts to support the economy continue to increase, there is still pressure for corporate loan interest rates to decrease,” said Vice-President Zhou Wanfu.
“The loan yield for the entire year will face some downward pressure,” Zhou added.
