Chinese bank profits crimped by slowdown
Lenders including ICBC and Bocom post lower earnings growth for third quarter, pressured by rising bad loans and interest rate liberalisation
Several big mainland banks saw profit growth slow in the third quarter, as they grappled with an increasing number of soured loans and a narrowing of the interest spread in the world's second-largest economy.
Third-quarter net earnings at Industrial and Commercial Bank of China, the world's largest lender by assets, rose 7.72 per cent year on year to 67.3 billion yuan (HK$85.6 billion), the bank said yesterday. That was weaker than the 68.7 billion yuan expected by many analysts, and a significant slowdown from the 12.5 per cent increase in the second quarter.
ICBC's non-performing loan ratio rose to 0.91 per cent from 0.87 per cent. Interest income increased by just 4.1 per cent, but gains from fees and commissions rose a robust 13 per cent.
Mainland banks are having to cope with the challenges brought by the "economic slowdown, accelerated interest rate liberalisation and stringent capital constraints", Bank of Communications said yesterday.
The mainland's fifth-largest lender saw net profit growth slow to 3.43 per cent year on year in the third quarter, missing analysts' forecasts by a large margin, as impaired loans climbed 21 per cent.
Bocom's non-performing loan ratio edged up 0.02 percentage point to 1.01 per cent and the loan amount rose by 850 million yuan to 32.55 billion yuan over the quarter. Net interest margin fell to 2.53 per cent from 2.56 per cent, it said.
"Profits of mainland banks generally slowed down from the second quarter to reflect the impact from the cash squeeze at the end of June," said Qiu Guanhua, an analyst at Guotai Junan Securities.
A credit crunch in June pushed interbank money rates to historic highs, causing banks' funding costs to jump.
"The fourth-quarter performance of bank shares will be most influenced by China's economic outlook," Qiu said.
The economy expanded 7.8 per cent in the third quarter, the fastest quarterly growth in a year, largely on infrastructure spending and credit. But many analysts caution that growth has probably peaked, because measures to tackle industrial overcapacity and the housing boom - likely to be unveiled after a key Communist Party meeting next month - are expected to drag on economic growth.
Also reporting results yesterday, Agricultural Bank of China, the country's third-largest lender by assets, said net earnings rose 15.3 per cent in the third quarter, in line with analysts' expectations.
Its non-performing loans grew 1.22 billion yuan to 87.92 billion yuan over the quarter, with their non-performing ratio at the end of last month standing at 1.24 per cent, the highest among the mainland's Big Four banks.
Bank of China, the mainland's fourth-largest lender, said net profit rose 13.8 per cent in the third quarter, beating analysts' expectations. Its non-performing loan ratio increased to 0.96 per cent, with a balance of 72.06 billion yuan.
Net profit growth at China Minsheng Banking slowed sharply to 6.27 per cent, as net interest margin shrank.
"Minsheng Bank could face higher pressure on funding costs, as China further pushes forward interest rate deregulation, including the introduction of negotiable certificates of deposit," Barclays Capital analyst May Yan said in a research note before the results were released. "It still faces capital-raising pressure in the long term, although short-term pressure has been mitigated by the issuance of a 20 billion yuan convertible bond in April."