China banks seek new lending horizons as bad debts rise

Sun Aug 31, 2014 6:05pm EDT
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By Engen Tham and Lawrence White

SHANGHAI/HONG KONG (Reuters) - Grappling with a slowing economy, China's biggest banks are turning their back on mainstay borrowers like manufacturers and courting high growth industries such as healthcare, food and IT in a bid to boost revenue.

The shift in focus by the state-owned lenders coincides with a spike in non-performing loans and slower profit growth as China's vast factory sector flounders.

For the first half of this year, the banks reported an increase in bad loans from the Yangtze delta, the country's main export-focused manufacturing belt, as well as the Bohai industrial rim.

China's biggest bank, the Industrial and Commercial Bank of China (1398.HK: Quote) (601398.SS: Quote), also said 80 percent of new non-performing loans in the second quarter came from manufacturing and wholesale.

Several lenders said they expect bad loans to continue rising this year, especially from creditors in the steel, wholesale and shipping sectors. The Agricultural Bank of China (601288.SS: Quote) (1288.HK: Quote), for example, said it had cut loans to customers in steel making and ship building by almost 39 billion yuan ($6.4 billion).

Loan officers at several banks told Reuters they were no longer working on sectors like shipping and commodities, focusing instead on high-growth areas like health and technology.

Other bankers said they would look to generate more revenue from asset management, trust lending and financial leasing.

Some banks, like Bank of China (BoC) (601988.SS: Quote) (3988.HK: Quote), were also looking to extend loans to domestic clients through their overseas branches to capitalize on higher interest margins.   Continued...

A man is silhouetted in front of a Bank of China's logo at its branch office in Beijing July 14, 2014. REUTERS/Kim Kyung-Hoon