Property strains weighs on CMB Wing Lung’s asset quality: Moody’s

Fee income will support the bank’s profitability

CMB Wing Lung will face ongoing asset quality challenges from its property sector exposure over the next 12-18 months, but fee income will support profitability.

The Hong Kong-based bank has been proactively resolving its exposure in mainland China property over the past year, noted Moody’s Ratings.

“The bank has continued to downsize its mainland China property exposure through loan repayments and write-offs, and has increased collateral and loan loss allowances held against such exposures,” the ratings agency said in its latest ratings commentary, where it gave the bank a “stable” outlook.

“However, the repayment ability of stressed property developers, as well as the expected recovery rate and time required to resolve the impaired exposures are still uncertain at this stage,” Moody’s said.

As of year-end 2024, the bank's impaired loans were 1.7% of its gross loans, higher than 1.5% as of year-end 2023, and mostly related to mainland China property.

CMB Wing Lung’s profitability, meanwhile, will be supported by the steady growth of fee and commission income. This could partly offset elevated credit costs in 2025.

“We expect the bank's credit costs, measured by loan loss provisions/ average gross loans, to remain elevated in 2025 compared to an average level of around 1% during 2020-2024,” Moody’s said, adding that net interest margin (NIM) will be challenged by the decline of market rates, although eased by proactive management of its deposit costs dudring hte year.

CMB Wing Lung’s credit costs declined to 1.86% in 2024 from 2.05% in 2023.

CMB Wing Lung should also maintain good capitalisation over the next 12 months, and solid liquidity with moderate reliance on market funds, Moody’ said.

“The bank holds ample liquid assets that mainly consist of interbank assets, government bonds, and bonds issued by highly rated financial institutions and corporates,” Moody’s said, adding that CMB Wing Lung’s liquidity coverage ratio was 145.6% for the first quarter of 2025, above the regulatory minimum of 100%.

CMB Wing Lung is also assumed to enjoy a very high probability of support from its parent bank CMB should the need arise.