Wrapup 2: China's big banks flag asset pressure due to virus, boding ill for smaller kin

Harbin Bank Co

30/03/2020 13:59

* Five of China's big banks post estimate-beating profit
    * Senior bankers warn of asset pressure
    * Smaller lenders likely to suffer

 (Adds details from CCB presser, AgBank)
    By Cheng Leng and Engen Tham
    BEIJING/SHANGHAI, March 30 (Reuters) - China's largest state
banks said the impact of restrictions on movement imposed to
slow the spread of the coronavirus could pull down asset quality
as borrowers struggle to repay loans, though they are likely big
enough to weather any fallout.
    The comments come as five of the country's largest
state-backed lenders posted estimate-beating fourth-quarter
profit - but they bode ill for smaller lenders, who have less
capital reserves and can call on fewer state borrowers.
 urn:newsml:reuters.com:*:nL4N2BK2LI  urn:newsml:reuters.com:*:nL4N2BM064 urn:newsml:reuters.com:*:nL4N2BC33Y
    The virus outbreak, which began at the end of last year, has
left many airlines, hotels and other businesses fighting to
survive after government countermeasures all but paralysed
economic activity for more than a month.
    Industrial and Commercial Bank of China Ltd (ICBC)
 601398.SS   1398.HK , China Construction Bank Corp (CCB)
 601939.SS   0939.HK  and Bank of Communications Co Ltd (BoCom)
 601328.SS   3328.HK  - posted annual profit growth of over 4%
for 2019 due in part to improving asset quality. 
    A prolonged pandemic might break the upward trend with
rising soured debt and shrinking net interest margins (NIM), a
gauge of banks' profitability, senior bankers said.
    "We expect there will be an increase in overdue loans in the
first quarter and first half," Bank of China Ltd's  601988.SS 
 3988.HK  Chief Risk Officer Liu Jiandong said after the lender
published annual results on Friday. The bank's president added
that the impact is likely to be short-term and controllable. 
    ICBC President Gu Shu likewise said the outbreak "will put
some pressure on our asset quality," but that the lender is
confident in its overall situation.
    Big-bank confidence is down in part to plush capital
reserves which can help ease the impact of a downturn.
    The provision coverage ratio at ICBC was 212.53% at the end
of December, compared with 198.09% three months prior. CCB's
ratio rose to 227.56% from 218.28% in the same period.
    China's largest banks have also benefited from preferential
government policies such as support to tackle bad loans. They
often lend to the biggest state-owned firms which are less risky
and which helps buoy profit even during economic downturn.
    
    TOUGHER TIMES 
    Smaller lenders, by comparison, have had a tougher time.
    Inner Mongolia lender Baoshang Bank Co Ltd  BAOTO.UL  was
rescued by the government in May and there was a run on Yingkou
and Yichuan Rural Commercial Bank in November.  urn:newsml:reuters.com:*:nL4N27V171
    "We estimate non-performing loans will total 250 billion
yuan ($35.23 billion) in the best-case scenario as a result of
the (coronavirus) outbreak," said analyst Liao Zhiming at TF
Securities.
    Smaller banks with lower capital reserves are likely to
struggle the most.
   "The pattern of low provisions, high non-performing loans and
high overdue loans suggests rural commercial banks are short of
capital," Gavekal Dragonomics said in a client note.
    On Monday, Moody's Investors Service changed its outlook on
six Chinese banks, including Bank of Nanjing Co Ltd  601009.SS 
and the Bank of Ningbo Co Ltd  002142.SZ , to negative, citing
the impact of the virus through exposure to highly affected
industries such as manufacturing and trade. 
    Meanwhile, Harbin Bank's  6138.HK  net profit for 2019
tanked 36% on-year, the lender said in its annual results on
Monday.
    "2019 was an extraordinarily difficult year for city
commercial banks," said chairman Guo Zhiwen.
    Overall, banks' NIM is likely to keep narrowing, bankers and
analysts said, as the government and central bank urge lenders
to sacrifice profit to support companies during the downturn.
    At BoCom and the Agricultural Bank of China Ltd (AgBank)
 601288.SS ,  1288.HK , the NIM was slightly wider at the end of
December than three months earlier. It narrowed at ICBC and CCB
and was steady at BoC.
    CCB expects to see a 10 bps decline in NIM in 2020 said the
bank's CFO Xu Yiming at a press conference on Monday. 
    Senior BOC and ICBC officials also flagged risk relating to
recent global market turmoil, saying contingency plans would be
in place to curb credit and operational risk abroad.

($1 = 7.0954 Chinese yuan renminbi)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Three of China's big banks beat profit estimates, warn of
coronavirus impact     urn:newsml:reuters.com:*:nL4N2BK2LI
China Construction Bank Q4 profit beats view, warns of virus
impact risks     urn:newsml:reuters.com:*:nL4N2BM064
ANALYSIS-Spectre of funding crunch looms over runs at China's
small banks     urn:newsml:reuters.com:*:nL4N27V171
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Cheng Leng and Zhang Yan in Beijing and Engen
Tham in Shanghai; Editing by Christopher Cushing,  Kirsten
Donovan)
 ((engen.tham@thomsonreuters.com;))