Chinese banks ICBC, BOC post sluggish profit growth
TWO of China’s biggest banks on Wednesday (Aug 30) posted sluggish profit growth and shrinking profit margins for the first half of this year, a sign that they are under pressure to expand credit support to beef up a weakening economy.
Industrial and Commercial Bank of China (ICBC), the country’s biggest lender, said in a filing its net profit grew 1.2 per cent year on year to 173.74 billion yuan (S$32.1 billion) in the first half of the year.
Bank of China (BoC) , the country’s fourth-largest bank by assets, reported a 0.78 per cent increase in its first-half net profit, the bank said in a filing.
Both lenders’ net interest margin (NIM) – a key gauge of profitability – shrank in the second quarter.
ICBC’s NIM stood at 1.72 per cent at the end of June, down from 1.77 per cent at the end of March. BoC’s NIM narrowed to 1.67 per cent at end-June from 1.7 per cent at end-March.
Chinese lenders are battling headwinds such as lower lending rates and pressure from the government to prop up the economy, which has been buffeted by weak demand both at home and abroad, as well as bad debts related to property developers and local government financing vehicles.
“Chinese banks are likely to continue to face earnings pressure from margin compression,” said Ming Tan, director at S&P Global Ratings.
A recovery in household and business confidence will be the biggest challenge for the banking sector in the second half of the year, as this will affect loan demand, pricing, and margins, said Tan.
ICBC’s non-performing loan (NPL) ratio stood at 1.36 per cent at the end of June, compared with 1.38 per cent at the end of March. BoC’s NPL ratio was 1.28 per cent at end-June, up from 1.18 per cent at end-March. REUTERS
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