Intensified efforts in risk management, credit structure bear fruit amid woes

Despite COVID-19 woes and the downward economic cycle, China's four largest State-owned commercial banks－the Big Four－recently said their asset quality remained stable in the first half amid efforts to optimize credit structures and step up risk management.

"We do face risks, especially in the sectors hit hard by COVID-19, such as the catering, tourism, wholesale and retail sectors, as well as micro and small businesses. They have further affected the asset quality of banks' home mortgage loans and credit card businesses," said Zhang Xuguang, executive vice-president at Agricultural Bank of China, at a recent news conference announcing the bank's 2022 interim results.

"While we are bailing out companies in temporary distress as a result of the pandemic, we are also conducting dynamic risk monitoring and stress tests. The overall risks have been controllable," Zhang said.

As of the end of June, the balance of ABC's nonperforming loans reached 264.46 billion yuan ($38.09 billion), up 18.67 billion yuan from the beginning of this year. The NPL ratio was 1.41 percent, down 0.02 percentage points. Its new NPLs that occurred in the first half were 70.2 billion yuan, falling by 5.6 billion yuan year-on-year.

"ABC will keep strengthening risk prevention and control by optimizing the credit structure and allocating more credit resources to promote rural revitalization, inclusive lending to micro and small businesses, infrastructure construction and green finance. The bank will further improve its risk response plan, promote advance prevention and targeted resolution of credit risks, enhance credit risk management, strengthen digital capabilities, and allow technologies to play a greater role in risk identification and management," Zhang said.

At the end of June, Bank of China, another of the Big Four, saw increases in the balance of NPLs and the NPL ratio compared with the beginning of this year. However, the bank also recorded a decline in newly occurred NPLs year-on-year in the first half.

The structure of its bad assets also changed. Thanks to China's multiple policies to stabilize the economy, BOC's NPL ratio on the Chinese mainland dropped 0.03 percentage points from the beginning of this year to 1.46 percent at the end of June. Its NPL ratio overseas increased due to the impact of the outbreak of COVID-19 offshore and the Russia-Ukraine conflict but the overall risks remained under control, said Liu Jiandong, chief risk officer at the bank.

The BOC continued optimizing the credit structure in the first half, with the growth of loans granted to the manufacturing sector, strategic emerging industries, and the fields of technology finance, green finance and inclusive finance exceeding the average growth of total loans, thus ensuring the stability of the overall structure of asset quality in the future, Liu said.

During the first six months, the Chinese real estate sector faced stress due to a resurgence of COVID-19 cases in some areas and downward pressure on the economy. This led to a rise in China Construction Bank Corp's NPL ratio in the sector, said Cheng Yuanguo, chief risk officer at the bank, one of the largest real estate lenders in China.

Its NPL ratio for residential mortgages was 0.25 percent at the end of June, up 0.05 percentage points from the end of last year, and the NPL ratio for corporate loans and advances to the real estate sector increased by 1.13 percentage points to 2.98 percent.

However, the overall risks of CCB's lending to the real estate sector and homebuyers still remain controllable and the allowances for impairment losses on loans are sufficient, said Cheng.

"CCB kept optimizing the credit structure, allocating more resources to key fields and weak links of the economy while reducing credit extensions to the real estate sector. The bank also pressed ahead with a house rental strategy," he said.

The balance of its loans to the house rental business was 180.62 billion yuan at the end of June, up more than 35 percent from the prior year-end.

In the first half, large banks stepped up disposal efforts for troubled assets. Industrial and Commercial Bank of China cleared up and disposed of bad loans worth nearly 100 billion yuan, 10.5 billion yuan more than the amount in the same period last year, said Wang Jingwu, senior executive vice-president at the bank.

ICBC will strengthen forward-looking prevention and proactive management of various types of risks. It will insist on the implementation of differential credit policies, improve the ability to choose high-quality assets, and make targeted efforts to defuse asset risks of key clients and in key fields of the economy, Wang said.

The NPL ratio of commercial banks in China fell 0.06 percentage points from the beginning of this year to 1.67 percent at the end of the second quarter. With the government taking multiple measures to stabilize economic growth in the second half, it is estimated that the asset quality of the banking sector will improve marginally, said a report issued by the China Banking Association on Thursday.