People walk past a Bank of China branch as customers wait to use ATMs in Beijing. The lender’s bad-loan coverage ratio, a measure of provisions for nonperforming loans, declined to 157% as of June 30 from 188% at the beginning of the year, according to the company’s exchange filing on Friday.

Bloomberg
Beijing


Bank of China ground out a second straight quarter of 1% profit growth and its earnings statement pointed to a looming drag from the need to set aside more money for bad loans.
The lender’s bad-loan coverage ratio, a measure of provisions for nonperforming loans, declined to 157% as of June 30 from 188% at the beginning of the year, according to the company’s exchange filing on Friday. The minimum level allowed is 150%.
That’s the lowest among Chinese banks that have reported first-half earnings and points to the toll that a rising tide of bad loans will take on future earnings.
Bank of China is the third of the big four lenders to report this week, after Industrial & Commercial Bank of China and Agricultural Bank of China posted second-quarter earnings that were almost flat from a year earlier. China Construction Bank Corp’s earnings are due today. At a press briefing in Beijing, Bank of China President Chen Siqing said that the Chinese economy faces downward pressure in the second-half and that interest-rate liberalisation and cuts to benchmark rates will put pressure on bank margins. The lender’s net interest margin was 2.18% as of June 30, down from 2.27% a year earlier.
Net income at Beijing-based Bank of China rose to 44.9bn yuan ($7bn) in the three months ended June 30, according to Friday’s statement. Its soured debt rose 24% from the beginning of the year to 125bn yuan as of June 30.
Shares of Bank of China have lost 19% in Hong Kong this year, compared with an 8% decline in the benchmark Hang Seng Index.Chinese banks’ average bad-loan coverage ratio stood at 198% as of June 30, according to the China Banking Regulatory Commission, which requires lenders to maintain provisions of at least 150% of the value of soured debt or 2.5% of total credit, whichever is higher.
ICBC, the world’s largest lender by assets, saw its bad- loan coverage ratio drop to 163% as of June 30 from 207% in December.