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Subprime impact limited on major Chinese banks

By Xu Shenglan (chinadaily.com.cn)
Updated: 2008-04-14 17:37

The US loan crisis has had limited direct effects on China's banking industry as the nation's three major banks all increased funds to cover possible subprime-related losses, the China Securities Journal quoted experts as saying on Monday.

According to 2007 annual reports, Bank of China (BOC), Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB) have all set aside more impairment allowance for subprime mortgage assets. BOC and ICBC have already entirely covered their paper losses from the subprime mortgage-backed securities, while CCB said that the crisis didn't affect the lender seriously.

Of all Chinese banks, BOC holds the most subprime-related bonds. By the end of last year, the book value on its subprime investment was lowered to $4.99 billion, accounting for 2.13 percent of its total securities investment value. The lender made an impairment allowance of $1.3 billion for the potential loss. It also recognized $282 million of fair value change reserves in shareholder equity.

"The provisions are enough to cover the book value of our subprime losses," said Li Lihui, President of BOC.

ICBC said in its annual report that it had recorded an impairment allowance of $400 million for its $1.23 billion investment in the subprime mortgage-backed securities by the end of last year.

CCB also said it had booked an impairment allowance of $630 million from its subprime investment, valued at $1 billion at the end of 2007.