China’s AgBank sees 5.4% jump in profits

Bloomberg

Agricultural Bank of China Ltd, the nation’s third-largest bank by assets, said it’s facing 1.23 billion yuan ($178 million) in overdue loans, nearly double a previous estimate, from a mortgage boycott on unfinished projects that has swept the country. After reporting a small gain in earnings on Monday, the Beijing-based lender revealed that the overdue loans are linked to 1,112 projects. It had previously estimated 660 million yuan in loans were affected by the unprecedented protests. Overall, AgBank’s non-performing loan ratio on real estate grew to 3.97% from 3.39% at the end of 2021.
Chinese banks’ exposure to the property sector tops that of any other industry, making them vulnerable to the woes that have already roiled capital markets and burned the nation’s middle class. In a worst-case scenario, S&P Global Ratings has estimated that 2.4 trillion yuan, or 6.4% of mortgages, are at risk amid a mortgage boycott across more than 90 cities as millions of homes have been left unfinished.
While acknowledging pressure on loans to the property sector, AgBank will actively satisfy all “reasonable” financing needs of developers and step up risk controls, Vice President Zhang Xuguang said.
AgBank’s first-half income climbed 5.4% to 128.9 billion yuan from a year earlier. It’s overall non-performing loan ratio fell to 1.41% from 1.43% at beginning of the year, while its allowance for impairments on loans rose by almost 8%.
China’s $52 trillion banking industry is being closely scrutinized by investors as the country’s rolling Covid lockdowns and a deepening property cast a deep pall over the economy. Banks have been told to boost credit to the embattled developers and smaller businesses even as lending margins shrink and bad loans pile up.

Shares of AgBank have dropped 4.1% in Shanghai this year, compared with a 11% loss in the benchmark index. The stock is trading near a record low of 0.4 times its estimated book value for 2022.
Smaller rival Bank of Communications Ltd. last week reported bad loans to real estate jumped 79%, while China Merchants Bank Co. has reported a doubling of its ratio of non-performing real estate loans.
China’s banks last week lowered their benchmark lending rates, including on mortgage loans, for the second time this year, adding pressure on their margins. The overall margin has narrowed to 1.94% in the second quarter from 1.98% three months earlier, according to the banking regulator.
AgBank’s net interest margin narrowed to 2.02% from 2.12%.
The lender could soon also see a shakeup in its management leading up to China’s national party congress later this year. The central bank is likely to name Agbank President Zhang Qingsong as a deputy governor, Caixin reported, citing unidentified people with knowledge of the matter.