CITIC unit weighed down by bad loans

Bad loans continued to rise at China CITIC Bank Co Ltd during the first six months of the year, putting more pressure on the lender's profit-making ability and risk controls.

As of June 30, the outstanding nonperforming loans of the medium-sized lender reached 30.48 billion yuan ($4.77 billion), up 20.7 percent from the previous year. Its NPL ratio increased by 13 basis points to 1.32 percent during the same period.

Fang Heying, executive vice-president of China CITIC Bank, said at a media conference on Wednesday that defusing financial risks will be one of the bank's top priorities.

"The growth in nonperforming loans has caused a relatively huge stress on the bank's profit-making abilities. During the second half, we will strictly control the NPL growth and step up efforts to dispose bad assets," he said.

In terms of geographical distribution, the bank's NPLs increased mostly in the Bohai Rim, followed by the western regions, Li Shanshan, a banking analyst at BOCOM International Holdings Co Ltd, said in a research report on Wednesday.

"The NPL increase was mainly caused by two factors: First, the inland regions are dominated by private small and medium-sized enterprises, which are incapable of fighting the risks. Second, sectors with excess capacity are clustering in the Bohai Rim," Li said.

During the first six months, the bank had dissolved 21.3-billion-yuan principal on NPLs by means of collection and write-off. The amount equals the entire amount for 2014.

By the end of June, the bank posted 82.8 billion yuan of overdue loans. Part of that will be dissolved by restructuring and transfer.

Sun Deshun, first executive vice-president of the bank, said: "With the economic slowdown and restructuring, financial risks will emerge in certain companies and industries, such as coal mining as well as wholesale and retail."

As a result, the bank will undertake a comprehensive reform of its risk management system, apart from reducing bad loan losses as much as possible. It has also received strong support from its parent company, CITIC Group Corp, in terms of NPL management by trying to sell bad loans to subsidiaries of the group in the first half of this year, Sun said.

By the end of June, the bank's allowance for impairment of loans rose 11.85 percent year-on-year to 54.4 billion yuan.

Such an increase was cited by Fang as a main reason for the slowdown in the growth of net profit attributable to shareholders to 2.51 percent, compared with 8.06 percent during the same period last year. Profit before provisioning recorded an increase of 13.84 percent from a year earlier.

The other factors that led to the drop in profit growth include the growth slowdown in net interest income, as China's demand for credit has weakened and the bank has cut back on high-profit lending to high-risk businesses, Fang said.

He expects the profit growth to remain stable in the second half of this year, adding that the bank will enhance its asset and debt pricing ability as well as increase profit through innovation.