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China's top banks book slowest Q3 profit growth in 3 years as bad loans rise

[SHANGHAI] China's top five banks are seeing their slowest third-quarter profit growth in at least 3 years, as the sluggish economy forces lenders to set aside capital for more bad loans and successive interest rate cuts shave margins.

State-owned Industrial and Commercial Bank of China Ltd (ICBC) reported near-flat profit growth on Friday while Bank of Communications Co Ltd (BoCom) reported a slight dip.

China's three other big banks - Bank of China Ltd (BOC) , Agricultural Bank of China Ltd (AgBank) and China Construction Bank Corp (CCB) - also saw near-flat profit growth in third-quarter results reported earlier this month.

The People's Bank of China has cut interest rates six times in less than a year, squeezing commercial banks' net interest margin (NIM), or the difference between income from lending and the cost of funding. The central bank has also scrapped the ceiling on bank deposit rates. "The interest rate cuts, in conjunction with the rate liberalization will pressure the banks' profitability because their deposits are usually repriced more slowly than loans," Moody's said in an October report.

As China heads for its slowest economic growth in a quarter-century, borrowers struggling with sluggish demand for their goods and services are finding it hard to repay loans.

Consequently, banks are seeing non-performing loans (NPL) rise and are revaluing an increasing volume of impaired assets.

ICBC's NPL ratio was 1.44 per cent at the end of September from 1.4 per cent at the end of June, while BoCom's ratio increased to 1.42 per cent from 1.35 per cent. CCB, AgBank and BoC also reported higher NPL ratios.

All five of China's largest commercial lenders reported a sharp increase in impairment losses on assets and are setting aside more capital.

ICBC's impairment losses on loans and advances to customers hit 61.25 billion yuan (S$13.57 billion) in the first nine months of the year, up 90 per cent from the same period a year earlier.

At BoC, impairment losses on assets increased by 14.88 per cent in January-September, while CCB reported a 62.65 per cent increase.