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China’s Biggest Banks Stand Exposed

China’s Biggest Banks Stand Exposed

Gold Silver Reports — China’s biggest banks stand exposed to their 1st annual profit declines in more than a decade.

That’s because lenders such as Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. have let their provision coverage for bad-loans – a key swing factor in earnings reports — fall close to the regulatory minimum.

With the largest lenders set to release first-quarter numbers this week, the big question is: Will the government come to their rescue soon by cutting the mandatory minimum for their bad-loan provisions, currently set at 150% of existing nonperforming debt?

“Some big banks are probably torn between whether to breach the 150% threshold or report a profit decline,” said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co. “For the first quarter, they can still maneuver a bit by cutting costs here and there, and end up with zero profit growth and still maintain the minimum NPL coverage ratio — but for the full year nobody can achieve both.”

China’s cabinet has discussed lowering the ratio and the China Banking Regulatory Commission would decide the timing and magnitude of any reduction, people familiar with the matter said in February. Some big banks have used a ratio of about 120% for their 2016 budgeting, according to the people. — Neal Bhai Reports

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