Banking & Finance

Chinese banking majors deliver improved 2017 earnings

Three of mainland’s five biggest players benefit, so far, from the regulatory crackdown on shadow banking which has driven borrowers back to traditional lenders

PUBLISHED : Wednesday, 28 March, 2018, 8:01am
UPDATED : Wednesday, 28 March, 2018, 8:01am

Three of mainland China’s five biggest banks have posted improved earnings for 2017, after a national regulatory crackdown on shadow banking drove more borrowers back to traditional lenders.

Net annual profits at Industrial and Commercial Bank of China (ICBC), the nation’s largest bank by assets, grew to 286.05 billion yuan (US$45.6 billion), up 2.8 per cent than a year ago, it said in a filing to the Hong Kong stock exchange on Tuesday. Analysts had forecast the lender to report 2.5 per cent profit growth.

China Construction Bank, the second largest lender by assets, also reported that its net profits gained 4.7 per cent on year to 242.26 billion yuan last year.

The two results came a day after Agricultural Bank of China, the country’s third largest bank by assets, became the first of the “big-five” state-owned lenders to post annual figures. It showed faster-than-expected annual profit growth of 4.9 per cent to 192.96 billion yuan.

“The earnings reports of the big banks, so far, reflect stronger profitability as they shore up greater interest income from borrowers forced back to traditional creditors amid the crackdown on shadow banking,” said Zhao Yarui, a senior researcher at Bank of Communications in Shanghai.

She said the three majors are now benefiting from stronger deposit bases and lower savings costs, allowing them to ramp up lending yields, noting that the improving profit levels have also helped them built their up their capital reserves to counter bad loans.

Interest payments now account for 60 to 80 per cent of overall income at Chinese banks, although the proportions vary.

The nation’s fourth largest lender Bank of China, and Bank of Communications, the fifth, are expected to post figures on Thursday.

ICBC’s net interest margin (NIM) – the difference between the interest rate a bank earns on loans and what it pays out in short-term borrowing costs as a proportion of its assets (as a key gauge of bank profitability) – increased to 2.22 per cent as the end of 2017, up from 2.16 a year earlier.

The bank said it has shored up its deposits by 7.9 per cent last year – the fastest pace recorded in the Chinese banking sector.

The NIM indicator at CCB inched up by 0.01 percentage point to 2.21 per cent, while AgBank’s reading was 2.28 per cent last year, from 2.25 per cent in 2016.

Also on Tuesday, AgBank’s vice-president Zhang Keqiu said she expects net interest margins to improve in 2018, Reuters reported.

The Beijing-based bank is confident of meeting international standards on total loss-absorbing capacity, Zhang told a news conference in Beijing.