China Big Five banks post modest profit growth amid loan push

Beijing/Singapore (Reuters): China’s five biggest state-owned banks posted a modest growth in quarterly profit as policymakers pushed them to make more loans, but the results still missed expectations amid the lingering impact of an economic slowdown.

Net profits at the country’s so-called Big Five banks, led by Industrial and Commercial Bank of China Ltd. (ICBC), grew by more than 4% in the January-March quarter from a year earlier.

The gain comes on the heels of disappointing 2018 fourth quarter when four of the five turned in their weakest profit growth in more than two years as business activity slowed and they sharply increased provisions for bad loans.

March data, however, suggests the economy may be starting to bottom out, buoyed by stimulus measures ranging from higher infrastructure spending to massive corporate tax cuts.

Profits at China’s industrial firms also returned to growth in March after shrinking for four months, adding to optimism that strains on corporate balance sheets may be easing in at least some sectors.

China’s economy grew last year at its slowest pace since 1990, partially due to the trade war and Beijing’s crackdown on financial risks, which raised corporate borrowing costs.

ICBC, the world’s top commercial lender by assets, on Monday posted a 4.1% rise in profit to 82.01 billion yuan ($12.17 billion), its fastest first-quarter growth since 2014.

Bank of Communications (BoCom), the fifth-largest in China, booked its fastest quarterly growth in five years with a 4.9% rise to 21.07 billion yuan.

Analysts had expected ICBC and BoCom to report profit growth of 4.3% and 5.2%, respectively.

Non-performing loan (NPL) ratios fell at ICBC, BoCom and Agricultural Bank of China Ltd., and held steady at China Construction Bank Ltd. (CCB) and Bank of China Ltd. (BoC).

The pressure on asset quality of banks has marginally eased due to a stabilizing economy in the first quarter, and disposal of bad loans by lenders, said Nicholas Zhu, a Beijing-based banking analyst of Moody’s Investors Service.

Some analysts, however, warn banks’ asset quality could come under pressure as they hike small business loans.

Smaller, private firms are considered higher credit risks than state-backed firms and more vulnerable to cyclical downturns.

Analysts have also cautioned it is too early to say there has been a sustainable turnaround in the economy.

“The formation of new NPLs can’t be taken lightly should the macroeconomic situation become less stable, so there’s a lingering concern for the asset quality,” Zhu said. Chinese banks extended a record amount of new credit in the first quarter, totalling 5.81 trillion yuan.

But the “front-loading” of loans during the quarter, with some hitting 40% of their annual targets, squeezed interest margins at some lenders, said Richard Xu, Morgan Stanley’s China banking analyst.

Net interest margin (NIM), a key gauge of profitability, improved slightly at ICBC and BoCom but narrowed by 0.08 percentage points at BoC and 0.02 percentage points at CCB.

NIMs at big banks will likely continue to narrow over 2019 due to relatively ample liquidity in the market, said Wang Jian, Shanghai-based banking analyst at Guosen Securities.

“Unless the economy picks up significantly, the central bank is not likely to tighten the liquidity condition,” Wang said.

Shanghai-listed shares of four of the five banks dipped on Tuesday, including an about 0.3% decline for CCB and BOC as of midday. That compared with a nearly 0.2% rise in the benchmark, which tracks blue-chips listed on the mainland, according to Refinitiv data.