Industrial and Commercial Bank of China, the world's largest bank in terms of market capitalisation, reported net profit rose 27.6 per cent year on year in the third quarter, thanks to strong growth in net interest income and higher fees earned from an expanded investment bank and wealth management business.
The growth rate is in line with market expectations but analysts fear potential bad debts from provincial governments and private enterprises will cloud the lender's outlook.
The bank said net profit for the three months to September was 54.36 billion yuan (HK$66.41 billion), up from 42.61 billion yuan a year earlier. For the first nine months of the year, net profit rose 28.8 per cent to 163.84 billion yuan.
Growth was driven by increased net interest income from a rise in interest rates. Net interest income was 92.58 billion yuan, an increase of 18.2 per cent from a year earlier.
Earnings were also boosted by fee and commission income from its growing investment bank, wealth management, credit card and private bank businesses. Net fee and commission income amounted to 24.5 billion yuan, up 38.6 per cent.
The bad debt situation improved in the quarter, with impairment losses on loans and advances to customers dropping 7.39 per cent to 7.63 billion yuan. The bad debt ratio at the end of last month stood at 0.91 per cent, down 0.17 percentage point from the end of last year.
The provision made in the first nine months, however, was much higher than a year earlier, with impairment losses 36.8 per cent more at 24.38 billion yuan. ICBC said this was based on a prudent principle of making more portfolio provisioning.
KGI Asia chief operating officer Ben Kwong Man-bun said ICBC, as the largest lender in the country, had a leading position in its deposit and wealth management business.
'What we need to worry about is its exposure to the loans made to regional governments and private enterprises,' Kwong said. 'The third quarter's bad debts have dropped but we do not know if the bank needs to make more provisions in the fourth quarter or next year.''
Louis Tse Ming-kwong, a director of VC Brokerage, is more optimistic.
'The reduced bad debt provision is a good sign,' Tse said. 'The fourth quarter is likely to see more improvement as the central government has shown intention in easing credit control and making it easier for banks' lending business.
'This would improve the overall economy and business environment and may help cut bad debt.'
At the end of last month, ICBC had assets of 15.13 trillion yuan, compared with 13.46 trillion yuan at the end of last year. Loans and advances to customers grew 11.9 per cent over the same period to 7.6 trillion yuan.
Loan-deposit ratio stood at 62.66 per cent at the end of last month. The core capital adequacy ratio was 10.03 per cent and the capital adequacy ratio was 12.51 per cent.
ICBC shares closed 7.7 per cent higher at HK$4.92 yesterday.
The net asset value of each ICBC share at the end of last month, in yuan, a rise of 9.79 per cent from December last year