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Official: Banks should prepare for tough year ahead

By Bi Xiaoning (chinadaily.com.cn)
Updated: 2008-12-11 11:53

Chinese banks should make more provisions for bad debt to guard against the weakening economy next year, since their profits in 2008 can increase by more than 50 percent year-on-year, an official said yesterday.

Chinese financial institutions can make about 700 billion yuan ($102.19 billion) of profit this year, up from 446.73 billion yuan last year, according to Yang Zaiping, an official with the China Banking Regulatory Commission (CBRC).

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"China's banking industry will be dragged down by the economic downturn next year, so it's necessary to prepare well for the coming tough year," said Yang, who is also the vice chairman of the China Banking Association.

Banks' profits this year are due to some one-off incomes, such as tax deductions, Yang said. As of the beginning of this year, the enterprise income tax rate was lowered from 33 percent to 25 percent.

Yang suggested that the banks could write-off some non-performing loans and make bad debt provision rates reach about 130 percent to confront potential risks next year.

At the end of 2007, the bad debt provision rate of China's big four State-owned banks (Industrial & Commercial Bank of China, Bank of China, Bank of Communications and China Construction Bank) is about 100 percent, according to Yang.

The Guangzhou Daily cited an unnamed source as saying: "Governments may be mulling policies to lower the business tax of commercial banks, which will further reinforce the banks' capital and risk resistance ability."