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https://scmp.com/business/companies/article/3003216/chinese-banks-post-slow-profit-growth-fifth-straight-year
Business/ Companies

Chinese banks to post slow profit growth for fifth straight year

  • Banks traded on the stock markets of Shanghai and Shenzhen are on track for a 6.7 per cent profit rise for 2018, according to a Ping An Securities forecast
According to a Bloomberg survey of analysts, China Construction Bank (CCB) is likely to post an 8.6 per cent profit climb in 2018. Photo: Reuters

Chinese banks, habitual profit stars on the mainland stock markets, are poised to report single-digit profit growth for the fifth consecutive year in 2018 as the world’s second-largest economy expanded at its slowest pace since 1990.

The lenders traded on the Shanghai and Shenzhen bourses are likely to post a 6.7 per cent profit rise year on year, according to a forecast by Ping An Securities.

Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB) will report earnings on Thursday, while Bank of China (BOC) and Agricultural Bank of China will report on Friday.

For the decade between 2003 and 2013, mainland banks reported annualised profit gains of 49 per cent, benefiting from the nation’s debt-fuelled economic expansion.

Banks’ performance last year was described as “stable” by analysts as most public lenders managed to contain the growth of bad loans amid the economic slowdown and the tit-for-tat trade war between China and the US.

“But they mainly relied on a credit boom to achieve profit increases,” said Wang Feng, chairman of Shanghai-based financial services firm Ye Lang Capital. “The stable performance was still a result of easy credit, rather than better financial services.”

On the mainland, deposit and lending rates at banks are still guided by the central bank.

The lenders, most of which are state-owned institutions, rake in easy profits banking on a lofty net interest margin of about 2.5 per cent.

For the first half of 2018, banks reported net profit of 827 billion yuan (US$123 billion) on aggregate, representing more than 42 per cent of the total profits by the 3,500 mainland-listed companies.

Banking authorities also have a tight grip on lenders, requiring them to issue credit at a pace in line with the central government’s directions.

China’s banks issued credit of 85.2 trillion yuan (US$12.70 trillion) during the first three quarters of 2018, up 9.4 per cent from the same period a year earlier. Photo: Reuters
China’s banks issued credit of 85.2 trillion yuan (US$12.70 trillion) during the first three quarters of 2018, up 9.4 per cent from the same period a year earlier. Photo: Reuters

China, the world’s second-largest economy, reported 6.6 per cent expansion in its gross domestic product last year.

Nonetheless, the 28 listed banks including the big four lenders – ICBC, CCB, BOC and Agricultural Bank of China – issued credit of 85.2 trillion yuan during the first three quarters of 2018, up 9.4 per cent from the same period a year earlier.

It was expected in mid-2018 that the trade tensions between the world’s two largest economies would give a boost to Chinese banks as Beijing aimed to prioritise infrastructure projects to combat a slowdown.

Loosened credit conditions could effectively bolster profits for the sector if they ward off a surge in bad loans.

According to a Bloomberg survey of analysts, CCB is likely to post an 8.6 per cent profit gain in 2018, topping its other three rivals.

John Qu, a senior partner at global consultancy firm McKinsey, said mainland banks will have to invest heavily in digital technologies to cut labour costs and strengthen risk management.