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April 29, 2016

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ICBC’s bad-loan ratio worsens

THE bad-loan buffer of Industrial and Commercial Bank of China fell below the regulatory minimum, highlighting debt issues again in Chinese banks.

ICBC’s coverage for bad loans stood at 141.21 percent of the current 204.66 billion yuan (US$31.6 billion) of non-performing loans by March, the world’s largest bank by assets said in a statement to Hong Kong’s stock exchange yesterday. The provisions breached the current regulatory minimum of 150 percent for the first time since it listed.

Bank of China was the first lender to post lower loan-loss coverage at 149.1 percent amid worsening sour debt pressure, BOC said earlier this week.

The higher the bad loan coverage ratio, the more capital the banks have to set aside in order to cover the risks brought by debt gone sour. Otherwise the money can be added to the net profit figure.

ICBC’s net earnings rose to 74.76 billion yuan in the three months ended on March 31 from 74.32 billion yuan a year earlier, while the bad-loan ratio worsened to 1.66 percent from 1.5 percent at the end of last year.

Analysts and industry insiders said there are signs that the government is likely to loosen the standard for banks’ percentage of the provision for bad loans.

Wang Hongzhang, chairman of China Construction Bank, told Bloomberg News on Tuesday that it would be “reasonable” and “possible” for the banking regulator to lower the ratio to 120-130 percent.

Agriculture Bank of China, the country’s third-largest lender that also released its quarterly earnings yesterday, said its bad-loan ratio was flat as last year’s 2.39 percent at the end of March and its loss-loan coverage fell 9 percentage points to 180.43 percent.


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