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China’s Everbright Bank missed profit estimates due to investment losses and an increase in cash set aside for souring property loans, sending shares of the regional lender almost 13 per cent lower in Hong Kong on Thursday.
Everbright, an important midsized bank in China, reported a 9 per cent decline in annual net profit to Rmb40.8bn ($5.6bn), widely missing analyst expectations.
The bank’s profit was hit by a drop in net interest income — the difference between what banks pay on deposits and what they earn from loans and other assets — and a surge of cash put aside for bad debts in the last quarter of 2023. It recorded Rmb5.7bn of impairments in financial assets/investments last year.
The bank’s results reflect how Chinese regional lenders, which are closely linked to heavily indebted local governments, are coming under increased pressure after Evergrande’s collapse in 2021 triggered a cash crunch for developers. China’s slowing economic growth, weak credit demand and declining investment from cash-strapped local governments are also weighing on lenders.
Bad loans in the property sector accounted for 18.6 per cent of Everbright’s total non-performing assets as of the end of 2023, up from 15.6 per cent a year earlier. The bank’s total bad loan ratio was flat at 1.25 per cent throughout 2023, after it wrote off a big portion of soured loans in the manufacturing sector.
“I want to make it clear that our fundamentals are stable and there are no major risk events that should be disclosed but have not been,” Everbright’s president Wang Zhiheng told reporters on Thursday.
“We are full of confidence in the future of Everbright Bank and I think nobody should worry too much or read too much into it.”
China’s “big four” bank revenues are also reporting slower profit growth as a result of the protracted property crisis and several cuts in benchmark interest rates to shore up economic growth.
“Banks need to be incentivised to lend to the sector once again, but this is hard given the wave of defaults,” said Shern-Ling Koh, a portfolio manager at Principal Real Estate Investors in a note.
“Arguably, the only measure that might restore confidence is some form of bailout of the larger developers. But this is not part of the government’s plan at this point.”
China Merchant Bank, one of the leading commercial banks in China, reported its first revenue drop since 2009 due to the central bank’s cuts in loan prime rate and weak credit demand.
The bank forecast that its interest margin would continue to fall in 2024 before gradually recovering in the next few years, according to Peng Jiawen, vice-president at CMB.
Bank of Communications, another large bank, reported on Wednesday that its property bad loan ratio increased from 2.8 per cent to 5 per cent as of the end of 2023. The top state banks are all expected to report their earnings by the end of March.
