China Bohai Bank said on Monday it is looking to sell 29 billion yuan ($3.99 billion) worth of non-performing loans as the faltering Chinese economy and deepening property sector problems pressure lenders to dispose of bad assets.
The Tianjin-based bank, 16.2% owned by British lender Standard Chartered, expects a financial hit of 3.9 billion yuan from the sale, the bank said in a statement on the Hong Kong Stock Exchange.
It added it should receive no less than 17.7 billion yuan for the transaction.
Bohai Bank is looking to get large soured loans off its balance sheet and said there are six potential buyers.
The six potential buyers include the local Tianjin branches of China’s four major asset management companies (AMCs): China Orient Asset Management, China Cinda Asset Management, China Great Wall Asset Management and China CITIC Financial Asset, and two local bad loan management firms Tianjin JR Assets Management and Tianjin Binhai Zhengxin Assets Management.
The four AMCs were established in the late 1990s following the Asian financial crisis to acquire and dispose of non-performing loans from state-owned banks. Over time, they have expanded their operations into broader financial services.
Bohai Bank, China Cinda Asset Management and China CITIC Financial Asset Management did not immediately reply to requests for comments. Calls to China Orient Asset Management, China Great Wall Asset Management, Tianjin Binhai Zhengxin and local state assets supervisor in Tianjin went unanswered.
China’s economy grew much slower than expected in the second quarter, with the worsening property market continuing to weigh on domestic banks. Smaller lenders are particularly vulnerable due to their higher exposure to less-developed regions and weaker capital positions.
The disposal comes as asset quality at smaller banks worsens, said Christopher Beddor, deputy China research director at Gavekal Dragonomics.
“The primary causes are the property-sector downturn and sluggish economic growth,” said Beddor. “Many banks have responded by aggressively disposing of troubled assets to keep their reported non-performing loan ratios low.”
Foreign banks are feeling the pinch of Chinese lenders’ deteriorating businesses.
StanChart had taken a total of $850 million in writedowns in the last few quarters on its stake in Bohai Bank and said in May it remained cautious about the sector as residential sales volumes continue to decline.
The Hong Kong-listed lender’s share price has shrunk 80% since its listing in 2020.
The net profit of the Chinese lender in 2023 is down 17% from a year ago, its annual report shows. The bank’s non-performing loan ratio stood at 1.78% at the end of 2023, higher than an industry average of 1.59%.
($1 = 7.2695 Chinese yuan)
Reuters