Agricultural Bank of China to withstand property crunch

Exposure to the mainland property sector has shrunk to 3.67% of its loan book.

The Agricultural Bank of China (ABC) should be able to maintain adequate capital levels over the next two years, which in turn will help it withstand ongoing real estate-related woes in China.

The megabank's strong market position, adequate capital, and risk management will help it to withstand the property crunch and weaker economic growth prospects locally, said S&P Global Ratings.

“We believe ABC will continue to tap regulatory capital instruments to sustain the asset growth and reduce funding costs to mitigate compression in its net interest margin (NIM),” the ratings agency said in a report. 

The bank reportedly has an unused quota of RMB60b in perpetual bond issuance. It has also announced a plan to issue bonds of RMB50b to boost its total loss-absorbing capacity.

However, the sluggish property market will test the bank’s asset quality, although risk is manageable in S&P’s view.

Exposure to the mainland property sector continues to shrink, and now just makes up 3.67% of its loan book versus 3.81% in end-2023.

Provision coverage of stage 2 and 3 loans was stronger than that of peers at about 133%, and should cushion further asset quality deterioration, S&P said.

As of 30 June, ABC’s risk metrics are “stable,” according to S&P. Its non-performing loans (NPL) and special-mention loans (SML) are at 1.32% and 1.42%, respectively. ABC’s property development NPL was 5.42%.