China’s ICBC, Agricultural Bank post profit drops on margin squeeze
- Chinese lenders are in the midst of a prolonged squeeze that has narrowed margins to record lows
- The government may press state banks to continue cutting lending rates, further eroding their margins, analyst says
Industrial and Commercial Bank of China (ICBC), the nation’s largest lender, reported its first decline in quarterly profit in more than a year as margins continue to contract.
Net income fell 2.78 per cent to 87.7 billion yuan (US$12.1 billion) in the first quarter, the bank said in an exchange filing on Monday. Its net interest margin narrowed to 1.48 per cent from 1.61 per cent at the end of 2023.
Chinese lenders are in the midst of a prolonged squeeze that has narrowed margins to record lows. Beijing has over the past few years called on the banks to cut loan rates and strengthen lending support to areas including its cash-strapped property sector and local governments.
Agricultural Bank of China also suffered its first quarterly profit decline in more than a year, with net income falling 1.6 per cent to 70.4 billion yuan. Its net interest margin narrowed to 1.44 per cent from 1.6 per cent at the end of 2023, while the non-performing loans ratio dropped to 1.32 per cent.
ICBC and Agricultural Bank last reported a decline in net income in the fourth quarter of 2022.
Bank of Communications on Friday said that net income rose 1.4 per cent in the first quarter.
Combined profits at China’s commercial banks rose 3.2 per cent last year, the slowest pace since 2020, according to official data.
Earnings prospects are likely to remain subdued this year. Bloomberg Intelligence estimates bank loan growth will slow to high-single digits in 2024 from 11 per cent last year due to soft demand from both corporate and household segments.
China’s home sales slump dragged on in March, while home price declines deepened from a year earlier for both new and used homes, signalling that a much-hoped-for turnaround for the sector is not in sight yet.
The government may press state banks led by ICBC to continue cutting lending rates, further eroding their margins and making it difficult to grow profits, BI analyst Francis Chan wrote in a note.
