Hong Kong company reporting season

China’s big four state-owned banks set to announce improved first-half profit

PUBLISHED : Sunday, 27 August, 2017, 2:13pm
UPDATED : Sunday, 27 August, 2017, 7:29pm

China’s big four state-owned banks are expected to report modest net profit gains for the first half of this year, according to analysts, an improvement from the first half of 2016 when net profits remained flat or fell slightly.

According to a survey of three analysts, China Construction Bank is expected to post the largest increase, of 3.1 per cent, and ICBC the smallest, at 1.3 per cent.

China’s commercial banking sector as a whole increased profits by 7.9 per cent in the first half of the year, according to China Banking Regulatory Commission (CBRC) data, but these figures also include smaller rural and city commercial banks who have more volatile earnings.

Ken Shih, research director at DBS Bank, who was not included in the survey, said he expected the profit rises would have a broad based foundation.

“The CBRC data shows that loan growth was better than expected in the first half of the year, we expect there to have been an improvement in banks’ net interest margins and to see improvements in asset quality,” he said.

Shih said that one reason for the increased loan growth was that the ongoing crackdown on China’s shadow banking system had pushed some corporate borrowers back to the traditional banking sector.

Banks’ net interest margins or NIMs (a measure of the difference between banks’ interest income and the amount of interest they pay out) dropped substantially in 2016, as a result of the decision by the People’s Bank of China to lower the base lending rate and changes in the way the value added tax is calculated.

However, for the big banks at least, NIMs picked up in the first half of this year. All four of China’s big banks also managed to achieve increases in NIMs in the first quarter, and banking analysts at Morgan Stanley estimate that they increased a further 3 basis points in the second quarter.

The improvements in asset quality will mean that the banks will have to set less money aside to cover impaired loans. According to CBRC data, the non performing loan ratio in China’s banking sector’s stood at 1.74 per cent at the end of June, the same level as at the end of 2016.

“The banks’ asset quality risk has come down given the better macro environment,” said Marco Yau a senior analyst at China Everbright Bank International.

‘We expect the improving profitability of the industrial sector, which covered most over capacity industries, will support banks’ asset quality too.”

Bank of Communications, China’s smallest state-owned bank, reported Thursday that its net profit increased by 3.5 per cent, beating analysts’ expectations.

The previous week, China Merchant’s Bank, the largest of China’s Hong Kong-listed mid-sized banks announced that its interim profits were up 11.4 per cent.

Commenting on Bank of Communications’ performance, Chen Shujin, head of financial research at Huatai Securities, said that she had raised her full year earnings forecast for the bank, and expected “a similar trend in the coming big-four banks’ results”.