China’s mega banks post increased profits in first quarter

[BEIJING] China’s largest state-owned lenders reported increased first-quarter earnings, as the industry seeks to emerge from a protracted squeeze on profitability that has defined the sector’s performance for years.

Industrial & Commercial Bank of China posed reported a 3.3 per cent gain to 86.9 billion yuan (S$15.9 billion), according to an exchange filing on Wednesday (Apr 29). Agricultural Bank of China and Bank of Communications posted earnings growth of 4.5 per cent and 3.1 per cent, respectively.

Net interest margins (NIM) were stable or continued to narrow across the banks, while non-performing loan ratios were largely stable.

Stagnant bottom lines have become a fixture for the industry as Beijing mandates that state banks perform national service to support the cooling economy through cheap credit and debt forbearance.

The persistent headwinds have forced lenders to navigate a tightening vise of record-low margins and deteriorating asset quality. This sustained strain prompted authorities in March to pledge the issuance of special sovereign bonds to recapitalise the nation’s largest banks, a move aimed at fortifying the US$70 trillion financial system.

Despite the lacklustre start to the year, some analysts see a turning point on the horizon. An increasing number of economists is predicting the nation’s central bank will not cut interest rates or lenders’ required reserves this year as the oil crisis caused by the Iran war pushes up inflation expectations.

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Morgan Stanley expects a brighter outlook for the remainder of 2026, forecasting a revenue recovery as margin pressure eases and fee income stabilises. “The repricing of deposits and a move towards ‘anti-involution’ in loan pricing-reducing irrational competition-are among the factors expected to support NIM this year,” analysts led by Richard Xu wrote in a late March note.

Asset quality is also expected to find a floor. According to Vivian Xue, a director for financial institutions at Fitch Ratings, Chinese lenders’ balance sheets will be underpinned by a more prudent approach to loan growth and a proactive strategy for disposing of toxic assets. BLOOMBERG