Chinese banks set to report profit growth in first quarter due to record lending, central bank support measures

State-controlled banks will report 5 to 10 per cent growth in first quarter net profit, thanks to record-setting lending, analysts say

The outlook is marred by higher potential for delinquent loans, as well as the economic impact of Covid-19 outbreaks

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A person pushes a bike past the People’s Bank of China (PBOC) building in Beijing March 4, 2021. The bank’s reduction of reserve ratios in the first quarter of 2022 reduced costs for state-controlled banks. Photo: Bloomberg

Published: 2:19pm, 27 Apr 2022

Chinese banks are set to deliver year-on-year earnings growth of 5 to 10 per cent when they report first-quarter earnings on Friday, due to a record level of loans and supportive measures by the central bank that minimised the impact of the country’s slowing economy.

The state-owned banks set to report earnings Friday include Bank of China, China Construction Bank, the Industrial and Commercial Bank of China, Bank of Communications, Agricultural Bank of China, and Postal Savings Bank of China.

China’s first-quarter gross domestic product (GDP) rose 4.8 per cent year-on year – just before the Omicron variant began grinding the major financial hub of Shanghai to a halt with a coronavirus lockdown imposed on April 1.

Banks’ lending in the first quarter rose to a record 8.34 trillion yuan (US$1.3 trillion), up 8.7 per cent from the previous record of 7.67 trillion yuan in the first quarter of 2021. That vigorous business and improved interbank liquidity conditions during the first three months meant that banks were able to keep their net interest margin – a key gauge of profitability – largely stable, analysts said.

The central business district in Beijing pictured on Nov. 23, 2021. Photo: Bloomberg

“Most banks have heeded the government’s call for achieving stable economic growth this year and they have dialled up their lending to businesses during the first quarter,” said DBS’ analyst Lu Minyi. “We expect leading state-owned banks to report profit growth of below 10 per cent.”