Chinese banks’ shares sink after Beijing reportedly tells them to control profit to support economy

Plummeting shares in Chinese banks dragged down stock markets on Friday morning, after the central government reportedly ordered lenders to “control profit growth” and increase funding support for small and private businesses amid a worsening economic slowdown.

In Hong Kong, all Chinese lenders were in the red at the lunch break, with smaller ones sinking the most. Bank of Qingdao plunged 8.7 per cent, Bank of Jinzhou slid 7.2 per cent and Jiangxi Bank was off by 6.9 per cent.

On the Shanghai stock exchange, ICBC, the country’s largest lender, declined 1.9 per cent to 5.13 yuan, leaving it poised to hit the lowest level in nearly six months.

China Construction Bank, the second biggest bank by market cap, lost 2.3 per cent to 6.25 yuan, also the worst level since early July. China Merchants Bank dropped 2.1 per cent to 25.37 yuan.

The three stocks alone contributed 5 points, or 20 per cent, to total losses on the Shanghai Composite Index on Friday morning. The Shanghai Composite Index traded 1 per cent lower at 2,510.98 at the mid-session break.

China’s banking regulators recently delivered a verbal message – a practice known as window guidance in Chinese – to banks telling them they should exercise “moderate control” of profit growth and not to “let the figures shoot too high” for 2018, according to the Securities Times, a newspaper run by the People’s Daily, on Thursday.

Beijing has been stepping up efforts to stimulate economic growth, which has slowed sharply during the US-China trade war.

“The financial system needs to boost its political thinking and be highly consistent with the [Communist] Party, meeting with the essential requirements that the finance sector needs to serve the real economy,” according to a transcript of a policy meeting on the central bank’s website last month.

The financial sector must take the initiative to address the funding difficulties facing many Chinese firms, and take measures to create a favourable financial environment, the transcript said.

Earlier this week, the People’s Bank of China said it would invent a specific lending tool, namely the targeted medium-term lending facility, to support small and private businesses.

“The move has confirmed China’s monetary policy is still focusing on domestic issues, as the authorities have strengthened the resolve to loosen the liquidity when the economy faces bigger pressure,” wrote analysts from Citic Securities in a recent note.

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The Securities Times also reported on Thursday that the banking regulators have told some urban and rural commercial lenders to cut their lending rates for small businesses. Meanwhile, the central bank has asked some lenders to lower their borrowing costs for individual households or small businesses.

The 10 most profitable Chinese banks all posted quarterly profit growth at or above 15 per cent, much higher than last year’s annual growth rates.

Nine of them are smaller regional lenders serving local businesses. Jiangsu Changshu Rural Commercial Bank posted net profit up 25.3 per cent from a year earlier, and higher than the 21.5 per cent growth for 2017. Bank of Shanghai’s net profit jumped 22.5 per cent in the third quarter, a threefold increase from last year’s 7.1 per cent growth.

On Friday, Jiangsu Changshu Rural Commercial Bank and Bank of Shanghai lost 2.7 per cent and 2 per cent respectively to 6.19 yuan and 11.17 yuan.

Among other top losers in the sector, Ping An Bank tumbled 3 per cent to 9.42 yuan, Shanghai Pudong Development Bank fell 2.2 per cent to 10.03 yuan, Citic Bank fell 1.5 per cent to 5.36 yuan, and China Minsheng Banking Corp gave up 1.2 per cent to 5.69 yuan.