Bloomberg News

China Banks Fall on Local Debt, Bad Loan Ratio: Hong Kong Mover

March 26, 2012

Agricultural Bank of China Ltd. led declines in shares of China’s biggest lenders after the nation’s banking regulator found some loans to local governments were misclassified and China Construction Bank Corp. reported an increase in its non-performing loan ratio.

Shares of Agricultural Bank fell as much as 3.5 percent in Hong Kong to HK$3.29 and finished trading at HK$3.33. Bank of China Ltd. (3988) fell 1.9 percent, Industrial and Commercial Bank of China Ltd. dropped 1 percent and Construction Bank fell 1.2 percent. Hong Kong’s benchmark Hang Seng Index was little changed.

Chinese banks misclassified about 1.8 trillion ($286 billion) of outstanding loans to local government financing vehicles, understating the risk that slowing revenue will cut borrowers’ ability to repay, a person with knowledge of the matter said after markets closed March 24. Construction Bank (939), China’s second-biggest lender, said its non-performing loans rose by 6.3 billion yuan in the fourth quarter.

“It is likely that banks will require more collateral or cash flows from local governments to support these ‘misclassified’ local government finance vehicle loans to avoid them from being downgraded to non-performing loans,” Barclays Capital analysts led by May Yan wrote in a note today.

Agriculture Bank’s shares gained 0.8 percent at the end of trading in Shanghai. ICBC gained 0.2 percent, Construction Bank was unchanged and Bank of China fell 0.3 percent. China’s benchmark Shanghai Composite Index gained 0.05 percent.

To contact Bloomberg News staff for this story: Bloomberg News in Beijing at dzhang14@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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