* Shareholders back 5.2 bln yuan bad loan provision for 2013
* Bad-loan write-off more than double original estimate
* Mid-sized banks share strain of slower economic growth
SHANGHAI, Jan 27 China CITIC Bank's
shareholders have agreed for the bank to
more than double bad-loan writeoffs for 2013, the latest sign of
how much China's economic slowdown is costing the country's
At a meeting in Beijing on Monday, shareholders signed off
as expected on management's plan to write off 5.2 billion yuan
($860 million) in non-performing assets, CITIC said in a Hong
Kong stock exchange filing. The bank originally budgeted for 2
billion yuan in writeoffs.
Exposed in particular to a buckling in the country's steel
industry as China's slowing growth depresses demand, the bank's
move offers a rare public glimpse of loan-loss management by
mid-sized lenders under pressure to strengthen their balance
sheets amid tighter global rules on capital.
CITIC said its net profit for 2013 would not be affected by
the steeper writeoffs as they will also cut its tax liability.
Yet the move highlights the bank's above-average
non-performing loan ratio, which stood at 0.90 percent at the
end of September 2013, the last period for which data is
available, compared with 0.83 percent for other mid-sized
The bank's request for shareholder approval was a formality
because of the government's majority stake in the bank. But it
was also an unusual step, as a company's directors have the
authority to write off bad debts occurring in the normal course
of business, without public disclosure.
"Normally speaking, you're not required to do this on a
regular basis," said Grace Wu, a China banks analyst at Daiwa
Capital Markets. "It's because the amount of disposal for Citic
Bank is higher than what they were originally planning for."
Yet the writeoffs for 2013 may not be the end of CITIC's bad
loan headaches. Its loan-loss coverage ratio - defined as the
ratio of loan-loss reserves to total loans - stood at only 2.09
percent at end-September, well below the system-wide average of
2.78 percent, according to Reuters calculations based on
Mid-sized banks are generally faring better than their
larger counterparts. The country's big banks had an average
non-performing loan ratio of 0.98 percent at end-September 2013,
according to official figures.
This is in part due to the big banks' higher exposure to
politically directed lending, which may be subject to less
rigorous risk management, said Wu.
Official data shows China's system-wide non-performing loan
ratio stood at 0.97 percent at end-September 2013, barely above
the 0.95 percent ratio at end-2012. Most analysts, however,
believe the true ratio is higher.
Banks can disguise bad loans by extending maturities or
offering new loans to roll over old ones. Another potential
source of undisclosed bad debt is off-balance sheet lending,
which has recently come under increased regulator scrutiny.
Small and medium-sized lenders have been among the most
active in raising off-balance sheet funds through the sale of
so-called wealth management products. Banks market these as a
high-yielding alternative to traditional bank deposits.
But like their international counterparts, Chinese banks are
under pressure to raise capital to meet tough new capital
adequacy standards. The country's banking regulator began
phasing in new capital norms last year in line with global rules
known as Basel III, introduced in the wake of the 2008 financial
crisis to strengthen banks' ability to absorb losses.
CITIC said in August it would issue as much as 37 billion
yuan in subordinate debt, which counts as Tier II capital under
China's Basel III rules. Tier I indicators are the most reliable
measures of a bank's reserves, while Tier II figures are
considered less so. The bank said the issuance will occur before
the end of 2015.
CITIC's Tier I capital ratio stood at 9.24 percent at
end-September, slightly below the system-wide average of 9.87
percent. China requires its banks to have a minimum Tier I
capital ratio of 6 percent.
The Ministry of Finance issued revised rules on Jan. 22 to
make it easier for banks to write off small loans.
($1 = 6.0488 Chinese yuan)
(Reporting by Shanghai and Bangalore newsrooms; Additonal
reporting by Gabriel Wildau; Editing by Kenneth Maxwell and