China’s Bank of Communications posts slight profit gain, warns of property risks

BEIJING/SHANGHAI: China’s Bank of Communications Co Ltd (BoCom), said on Wednesday it needed to improve risk control of its property-sector related business, after posting tepid 2023 profit growth.

BoCom, the first among the nation’s biggest five state banks to report its annual results, reported only a slight gain in full-year net profit in 2023 from the year before.

Its net profit rose 0.68% to 92.73 billion yuan ($12.83 billion) last year, the bank said in an exchange filing, though it still topped the 90.8 billion yuan analysts’ consensus forecast, according to LSEG data.

“Three ‘grey rhinos’ are property, local debt and business with small-and mid-sized financial institutions,” BoCom President Liu Jun told a press conference, referring to a term for a highly probable and obvious though largely ignored threat.

BoCom should “further step up risk control” of its property-sector related business, said Yin Jiuyong, BoCom’s vice president. In February, five state-owned Chinese banks were matched with more than 8,200 residential projects for development loans under the “whitelist” mechanism aimed at injecting liquidity into the crisis-hit sector.

Analysts worry such loans to debt-laden developers will significantly increase banks’ exposure to the ailing property market.

BoCom will implement the “whitelist” mechanism, Beijing’s latest support measure aimed at easing the sector’s unprecedented liquidity squeeze and spurring home purchases, said Yin.

MARGIN PRESSURE Its net interest margin (NIM) - a gauge of profitability - stood at 1.28% at the end of last year, down from 1.30% at the end of September 2023.

“The pressure on asset quality control is significant,” said Yin. “NIM is expected to continue to face certain pressure in 2024,” said the lender’s chief risk officer Liu Jianjun. The bank’s non-performing loan ratio was 1.33% at end of 2023, compared to 1.32% at the end of September, though many analysts believe soured loans at Chinese lenders are much higher. That ratio for real estate lending was 4.99% at the end of last year, compared with 2.80% at the end of 2022.

The property sector in the world’s second-largest economy has lurched from one crisis to another since 2021, after a regulatory crackdown on developers’ high leverage led to a liquidity crisis.