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China's big banks post modest Q1 profit growth

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

[BEIJING] China's five largest state-owned banks posted modest first-quarter profit growth, though slightly below expectations, as policymakers pushed lenders to make more loans to support the slowing economy.

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

The gain comes on the heels of disappointing 2018 fourth-quarter results that saw four of the five lenders posting their weakest quarterly profit growth in more than two years as business activity slowed and they sharply increased provisions for bad loans.

March economic data, however, have suggested the economy may be starting to bottom out, buoyed by a flurry of stimulus measures ranging from higher infrastructure spending to massive corporate tax cuts.

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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.

Chinese banks extended a record amount of new credit in the first quarter, totalling 5.81 trillion yuan (S$1.17 trillion).

ICBC, the world's top commercial lender by assets, on Monday posted a 4.1 per cent profit rise to 82.01 billion yuan, 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 per cent rise to 21.07 billion yuan.

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

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

The pressure on asset quality of banks has marginally eased due to a stabilising 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.

However, few analysts are betting on a sustained improvement in asset quality as Beijing pushes state lenders to aggressively ramp up lending to smaller, private companies, which 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," Mr Zhu said.

Net interest margin, 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 in the quarter.

Margins at big banks will likely continue to narrow over the course of 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," Mr Wang said. 

REUTERS