Chinese lenders ICBC, Bocom and CCB defy expectations of decline in sector to post flat earnings growth for 2020

We expect our asset quality will steadily improve, Bank of Communications’ executive vice-president says
ICBC reports 1.4 per cent rise in net income to 317.7 billion yuan

China economy

Georgina Lee

Published: 7:00am, 27 Mar 2021

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Leading Chinese lenders Industrial and Commercial Bank of China (ICBC), Bank of Communications (Bocom) and China Construction Bank (CCB) defied expectations of a decline in the industry by reporting more than 1 per cent growth in full-year earnings for 2020 on Friday.

A recovery in China’s economy, which grew 6.5 per cent year on year during the fourth quarter, helped the three banks avert a full-year net profit decline, which would have been the worst pullback since the fourth quarter of 2008, analysts said.

The results also bucked a deterioration flagged by the country’s banking regulator in its quarterly report released in February, which pointed to a 2.7 per cent overall profit drop for the sector last year.

“While [the impact] from the pandemic has still not entirely disappeared, and we are likely to still face pressure on our ability to control the risks on asset quality in 2021, we do expect our asset quality will steadily improve,” said Yin Jiuyong, executive vice-president of Bocom.

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Last year, the Chinese government asked banks to sacrifice as much as 1.5 trillion yuan (US$229.3 billion) in profits to finance cheap loans, cut fees, defer loan repayments and grant more unsecured loans to help small businesses hit by the downturn caused by the coronavirus. The regulators said in January that banks have largely committed the full amount.

Net profit at Shanghai-based Bocom edged up 1.3 per cent from a year earlier to 78.3 billion yuan (US$12 billion), beating a consensus estimate of 70.9 billion yuan among seven analysts polled by Bloomberg. Its flattish bottom line was pressured by higher provisioning for loan losses, which totalled 56.3 billion yuan, up 15 per cent from a year earlier.

But the worst could be over for Chinese banks. At its results briefing on Friday, Bocom officials expressed optimism and said that they were more capable of containing the impact of the pandemic, which has largely been brought under control in China, on their loan book. The sector’s non-performing loan (NPL) ratio rose to a decade-high during the second-quarter last year.

On Friday, Bocom’s NPL ratio stood at 1.67 per cent, higher than the 1.47 per cent reported at the end of 2019, but it was flat compared to the level seen in September last year. Its net interest margin, a key gauge of banks’ profitability, was flat at 1.57 per cent compared with 1.58 per cent a year ago.

01:47

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The strong rebound in the fourth quarter also probably helped ICBC, the biggest of China’s six state-owned lenders, cushioning an earnings decline seen during the coronavirus-hit second and third quarters, according to analysts.

On Friday, the bank said its net income for the year rose 1.4 per cent to 317.7 billion yuan. Its bad loan ratio stood at 2.29 per cent, up 0.27 percentage points from the year before.

Net income for CCB increased 1.6 per cent to 273.6 billion yuan (US$41.8 billion) last year, according to an exchange statement on Friday night. Its bad-loan ratio stood at 1.56 per cent, rising 0.14 percentage points from 2019.

Other state-owned commercial banks such as Bank of China and the Agricultural Bank of China are due to release their earnings next week.

Additional reporting by Zhang Shidong.

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