China’s Big Four state-owned banks’ first-quarter earnings growth comes in line with analysts’ expectations
- China Construction Bank led the profit growth, reporting a net income of 83.1 billion yuan (US$12.85 billion), up 2.8 per cent year on year
- ICBC was the only major bank that did not see a drop in its bad-loan ratio, which was unchanged at 1.58 per cent at the end of March
Leading state-owned Chinese banks reported first-quarter profit growth in line with analysts’ expectations while exceeding the mainland’s industry average of a 1.5 per cent profit increase, as they were helped by lower bad-loan provisions and continuing economic recovery.
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“Their earnings results met market expectations,” said Ivan Li, a fund manager at Shanghai-based Loyal Wealth Management.
“Improved economic fundamentals paved the way for banks’ profit growth, but they need to be cautious against a potential rebound in bad loans because some of the corporate borrowers are still victims of the coronavirus outbreak.”
Apart from the Big Four, Shanghai-based Bank of Communications posted a 2.3 per cent rise in first-quarter profit to 21.9 billion yuan.
The top banks reported a decline in their non-performing loan (NPL) ratio over the past three months as the banking regulator required them to strengthen risk management and refrain from lending to some sectors such as property.
ICBC was an exception, as its NPL was unchanged at 1.58 per cent at the end of March.
“We expect China banks’ NPL ratio to peak by the end of second quarter this year, thanks to economic recovery,” Chen Shujin, an analyst at Jefferies, said in a research note on Wednesday.
She added that it could be volatile in the first two quarters because of the deterioration of some loans rolled over from last year when the pandemic was raging in China.
The deferred loans amounted to 6.6 trillion yuan last year, according to China Banking and Insurance Regulatory Commission.
The mainland’s banking regulator said earlier this month that the bad loan ratio at banks across the country declined to 1.89 per cent in March from 1.92 per cent at the end of 2020.
Chinese banks will continue to face pressure on their net interest margin this year, as they heed the government’s call to keep financing costs low for small businesses to support the real economy’s recovery, said Calvin Zeng Hao, an audit partner at Deloitte China based in Shanghai.
“This will continue squeezing banks’ interest margin this year because they will have limited room to lower the interest rate they pay on deposits,” said Zeng. The interest rate paid on deposit represents part of a bank’s funding cost.
Mainland banks’ fortunes are tied to the country’s economic growth given their role as the conduit of the government’s economic policies.
China has set an economic growth target of “above 6 per cent” for 2021 after it grew by 2.3 per cent last year. However, analysts expect growth to easily surpass that target, at more than 8 per cent this year.
