China’s largest banks weather property woes but margins narrow

CHINA’S largest lenders have posted third-quarter profit rises of more than 4 per cent as their diverse lending portfolios kept them above the fray of property market woes.

But banks mostly logged shrinking net interest margins - a key gauge of bank profitability - in a sign that loan demand is weak as the world’s second-largest economy slows.

Industrial and Commercial Bank of China (ICBC), the world’s largest commercial lender by assets, said net profit rose 6.8 per cent year-on-year in the third quarter in a Friday (Oct 28) filing.

Agricultural Bank of China (AgBank), Bank of Communications (BoCom) and Bank of China (BOC) followed suit with net profit up 6.4 per cent, 6.7 per cent and 4.83 per cent, respectively.

China Construction Bank (CCB) led the pack with net profit growth of 8.61 per cent.

The diversity of China’s largest bank portfolios has insulated them against the turmoil in the property market, which has seen loan defaults mount and cash-flow issues continue to dog the industry.

“Big state-owned banks’ lending to property developers accounts for 3 per cent-7 per cent of their total loans ... a proportion lower than small and medium-sized lenders,” said Vivian Xue, director of financial institutions at Fitch Ratings, referring to the position at the end of the first half.

“And the big banks mainly lend to state-owned or high-quality developers,” Xue added.

However, most of the lenders logged a squeeze on net interest margins (NIMs).

ICBC’s NIM fell to 1.98 per cent at the end of September compared with 2.03 per cent at the end of the prior quarter. AgBank and BoCom also saw a small fall over the same period, to 1.96 per cent from 2.02 per cent and 1.50 per cent from 1.53 per cent respectively. CCB’s slid to 2.05 per cent from 2.09 per cent.

BOC bucked the trend with a slight uptick from 1.76 per cent at the end of June to 1.77 per cent at the end of September.

China’s third-quarter GDP data showed domestic demand waned towardss the end of the quarter as a flare-up in coronavirus cases led to lockdowns, while export growth slowed and the key property sector further cooled, pointing to a fraught recovery.

“As overall credit demand remained weak, Chinese banks have to lower loan-interest rates to lend out money, posing pressure on their net interest margins,” said Michael Zeng, a banking analyst at Daiwa Capital Markets.

Zeng expects the sector’s NIM to further narrow in the fourth quarter.

Four lenders posted slight falls in non-performing loan ratios in the third quarter. Both ICBC and AgBank posted NPL ratios of 1.4 per cent for the end of September compared with 1.41 per cent at the end of the quarter before.

Meanwhile, BoCom’s NPL ratio fell to 1.41 per cent at the end of September from 1.46 at the end of June, while BOC’s fell to 1.31 per cent from 1.34 per cent over the same period. CCB’s held steady at 1.4 per cent. REUTERS