China's BoCom posts first H1 profit fall since listing as bad debts rise

BEIJING/SHANGHAI: Bank of Communications Co Ltd , China's sixth-largest bank by assets, reported on Friday a 14.6% drop in first-half profit as sour debt rose amid the COVID-19 pandemic.

The first fall in January-June profit since the bank's 2007 listing in Shanghai highlights the impact of the outbreak and the slowing economy on Chinese banks that bucked the first-quarter global trend with higher profits and steady bad loans.

Now China's financial institutions are heading into the second half cautious over a possible second wave of infections.

BoCom has boosted "provisions to counter the future impact of the pandemic," its vice president, Guo Mang, told a news conference.

BoCom is the first of China's largest state-owned banks to report half-year earnings.

Profit came in at 36.5 billion yuan ($5.32 billion) for January-June, down from 42.75 billion a year earlier, the bank said in a statement to the Hong Kong stock exchange.

That implied a second-quarter net profit of 15.1 billion yuan, down 30.6% from a year earlier, Reuters calculations show.

China's top banking watchdog has asked state lenders to fully recognise bad loans on balance sheets and boost buffers to cover souring debt in the first half, weighing on their profits, people familiar with the matter have said.

During the reporting period, BoCom disposed of non-performing loans (NPL) totalling 34.3 billion, an increase of 25% on an annual basis. Its non-performing loan ratio rose to 1.68% at the end of June from 1.59% at the end of March.

BoCom "plans to significantly boost its efforts to dispose NPL in the second half", said Chief Risk Officer Zhang Hui at the news conference.

Its net interest margin (NIM), a key gauge of profitability, fell to 1.53% at the end of June from 1.55% at the end of March. Guo added that, while manageable, the bank's NIM faced downward pressure in the second half, partly from a falling benchmark loan prime rate.

Overall, Chinese commercial banks posted a 9.4% drop in first-half net profit to 1 trillion yuan, data from the China Banking and Insurance Regulatory Commission (CBIRC) shows.

By the end of June, their average NPL ratio was 1.94%, CBIRC data showed, the highest since the global financial crisis.