On the evening of August 19, BOC released its interim results and became the first to do so among the four major state-owned banks. Its interim report showed that as of the end of June, the Bank's NPLs totaled RMB85.9 billion, representing an increase of RMB12.6 billion. NPL ratio stood at 1.02%, up 0.06 percentage points, but lower than the industry average level of 1.08%. At the results release conference, BOC offered details on how it strengthened risk management to ensure asset quality was under control.

Status quo: Asset quality stays within a reasonable range

As regards the status quo, Executive Vice President of BOC Zhang Jinliang expressed that BOC is facing increasing pressure on asset quality this year. Judging by industry, new NPLs mainly come from the sectors of manufacturing, wholesale and retail, communication and transportation, such as steel trade, shipping and some SME loans. By region, the incremental NPLs are mainly concentrated in export-oriented coastal areas. "We think changes in asset quality have reflected and mirrored the decelerating domestic economy and economic restructuring in domestic banking system. At present, BOC's asset quality remains within a reasonable range, with NPL ratio lower than the industry average of 1.08%", said Mr Zhang.

Research and judgment: Firmly step up efforts to hold down existing non-NPL credits

To effectively counter the pressure on asset quality, BOC has always adhered to rigorous credit approval and risk early warning mechanisms, actively reinforced risk control to push down the existing non-NPL credits, and stepped up efforts to make provisions. BOC made loan impairment provisions of RMB27.5 billion, up RMB13.6 billon year on year; credit cost was 0.69%, up 30 basis points year on year; provision coverage ratio for NPLs reached 217%; provision-to-loan ratio among its domestic institutions was 2.71%, up 0.09 percentage points over the end of last year.

Meanwhile, BOC has stepped up efforts to mitigate NPLs. In the first half of the year, its domestic institutions dissolved non-performing assets (NPAs) totaling RMB27 billion, including cash collections of RMB13.1 billion and cancellation of RMB9 billion in principal, including batch transfers of NPA-related principal of RMB7 billion. NPAs were mainly concentrated in the wholesale and retail sector as well as manufacturing sector in the Yangtze River Delta and southeastern coastal areas. The Bank also reinforced full-range control over risks related to the financing platforms of local governments, overcapacity and the real estate industry. Among which, loans relating to local government platforms continued to fall to RMB347.2 billion from the end of last year, with NPL ratio at 0.13% and provision-to-loan ratio at 3.9%; loans to overcapacity-obsessed sectors reached RMB191.3 billion, with NPL ratio at 0.98% and provision-to-loan ratio at 3.0%; loans relating to the real estate industry stood at RMB359.2 billion, with NPL ratio at 0.26% and provision-to-loan ratio at 4.8%.

In the second half of 2014, facing the relatively huge pressure on asset quality control, BOC will continuously strengthen research and judgment of risks, actively enhance risk management and dissolution of NPAs, in efforts to keep the overall credit risk within a controllable and solvable range.

In future: Ensure asset quality remains under control

The Chinese economy is going through three challenging phases simultaneously: gear shifting in growth rate, painful period amid restructuring, and digestion of earlier-stage stimulus policies. The "three overlapping phases" have, in effect, pointed to a risk accumulation period for commercial banks.

To cope with this situation, BOC will adopt three approaches: first, take preventive measures; second, identify minor weaknesses to ward off systematic problems; third, plug loopholes to control risks effectively.

To take preventive measures means to continuously enhance risk forecast and evaluation capabilities and identify potential risks in time. BOC will actively strengthen its risk management, especially over major and key risks; distinguish niche sectors, customers and projects from industries plagued by overcapacity, and implement differentiated control measures; exercise total quotas management over the financing platforms of local governments and strictly control incremental credit; appropriately control the credit ratio in the real estate sector; rigorously control key risk points in wealth management, interbank assets and off-balance sheet financing business for investment banking; properly manage risks associated with trade finance; pay keen attention to the reform process of interest rate and exchange rate deregulation, and boost the decision-making capability for market risk management; improve the liquidity emergency response mechanism to ensure liquidity safety; uniformly press ahead with the implementation of the Basel New Capital Accord and its self-construction as a systematically important bank; and step up internal control and guard against various kinds of negative cases.

To identify minor weaknesses to ward off systematic problems means to examine and locate systematic problems from details, and timely improve risk management regulations and processes. BOC will seriously summarize risk cases, issue risk alerts, strengthen rectification of regulations and processes, and thoroughly collate and improve various risk management rules; consistently boost the role of risk management in supporting business development while practically reinforcing risk management and maintaining asset quality stability, and support business expansion at front lines; raise risk management efficiency by adjusting authorization, consolidating the credit grant process and optimizing overseas approvals; and support market expansion by business departments, and enhancement of competitiveness in major areas and characteristics businesses including overseas business, trade finance, medium, small and micro enterprises.

To plug loopholes to control risks effectively means to timely plug the loopholes in risk management, and dissolve NPAs by taking a variety of measures. The Bank will continuously step up cash collection efforts to effectively address NPLs by adopting multiple collection methods and seizing favorable opportunities, and reinforce operation and management of NPAs by market-oriented means; strengthen departmental coordination and help identify, mitigate and manage risks.

Executive Vice President Zhang Jinliang added, "BOC will prevent regional and systemic risks with more sound regulations, measures and processes."



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