Nanyang Commercial Bank needs more loss provisions to resolve property woes

The bank is expected to face profitability and asset quality challenges through 2025.

Nanyang Commercial Bank (NYCB) is expected to continue facing profitability pressures over the next 12-18 months due to its property-related exposures.

The bank’s asset quality will continue to be challenged by its property exposures in mainland China and Hong Kong. These pressures are expected to take “several years to recover,” said Moody’s Ratings in its latest ratings report of the bank, where it gave NYCB a negative outlook.

“The negative outlook on NYCB's deposit ratings reflects our expectation that the bank's profitability will face ongoing pressure over the next 12-18 months as it may need to raise further loan loss provisions to resolve its mainland China property exposures,” Moody’s said.

Its overall impaired loan ratio increased to 2.8% as of June 2024, from 2.3% at the end of 2023, mostly because of its mainland China property-related loans.

The property sector downturn is also testing the bank's Hong Kong-related property development and investment loans, Moody’s warned.

“Nevertheless, its unsecured lending is mostly to top-tier borrowers with solid credit profiles, while its loans to second-tier and smaller-sized borrowers are secured and have moderate loan-to-value ratios, limiting potential credit losses for the bank,” it added.

On the other hand, NYCB has adequate capitalization and good liquidity, with a moderate reliance on wholesale funding, Moody’s said. These strengths have reportedly provided a buffer against the deterioration in its asset quality and profitability

The bank is working to reduce loans to mainland China property borrowers through loan write-offs and repayments.

Moody’s also expects a high level of affiliate support from its parent, China Cinda Asset Management. However, Cinda AMC’s capacity to provide support is limited, it added.