Tighter interest margins and rising bad loans weigh on CCB

The non-performing asset ratio is expected to rise to 4.48% in 2024.

Tighter net interest margins (NIM) and a slight rise in its bad loans ratio will weigh on China Construction Bank (CCB) in 2024.

CCB’s non-performing asset ratio is expected to rise to 4.48% in 2024, from 4.4% in 2023. Dragging it down will be problematic property loans and higher reported special-mention (SML) and nonperforming (NPL) loan ratios following the implementation of new asset classification rules. 

The bank’s reported NPL ratio was unchanged at 1.37% from end-June 2023. SML ratio, meanwhile, slipped 2.44% from 2.5% during the same period.

CCB’s property loans deteriorated in the second half of 2023, with the NPL ratio rising 88 basis points to 5.64%. Still, property loans remained a small portion of total loans, at 3.6% as of end-2023, S&P noted.

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“We expect tighter NIMs to continue to constrain profitability amidst CCB's ongoing shift to corporate sectors. Compounding this are consecutive cuts in interest rates and the government's push for banks to lower their lending rates to support the real economy,” S&P Global Ratings said. 

Overall, however, CCB has sufficiently prudent risk management to protect its asset quality this year, the ratings agency said.

“Whilst net interest margins (NIMs) are being squeezed, loan growth is healthy. A 2.3% rise in net profit in 2023 highlights the bank's financial resilience,” it added.