ICBC flags trade war risks as profits rise

Shanghai

INDUSTRIAL and Commercial Bank of China, the world's largest commercial bank, joined its peers in reporting higher first-half profit and a steady bad loan ratio, but flagged trade tensions as a risk to the economy.

ICBC, like other big state-owned lenders, has been seeing a rebound in business with its diverse revenue sources and strong capital buffers giving it an edge over smaller peers as China cracks down on risk in the broader financial sector.

But "trade friction is bringing uncertainty to the global and China economy", ICBC chairman Jiang Jianqing said at a news conference on Thursday.

For the six months ended June, China's biggest bank by assets netted a profit of 160.4 billion yuan (S$32 billion), compared with 153 billion yuan in the same period a year earlier, the bank said in a filing.

The first-half figure implies a net profit of 81.6 billion yuan for the second quarter, up 5.7 per cent from 77.2 billion yuan a year ago, according to Reuters calculations.

Analysts had expected a 5.2 per cent rise in quarterly net profit, according to four analyst estimates compiled by Reuters.

ICBC's net interest margin (NIM), the difference between interest paid and earned - a key gauge of profitability - was 2.30 per cent at the end of June, steady versus end-March levels.

Margins are expected to improve for lenders across the board in the second half with Beijing pumping funds into the banking system and rolling out support measures for local businesses to cushion the impact from an escalating US-China trade war.

Fitch Ratings said Beijing's recent measures to support the economy amount to a loosening of its policy stance and a partial shift away from the focus on addressing financial risks.

Broader calls for banks to support lending to the real economy and declines in interbank interest rates suggest that credit growth is now more likely to stabilise or marginally accelerate during the remainder of the year, it said.

But analysts fear an unrestrained, credit-fuelled growth could ramp up a build-up in bad loans as the world's No 2 economy cools, undermining Beijing's push to reduce riskier lending and a mountain of debt.

ICBC's non-performing loan (NPL) ratio held steady at 1.54 per cent at end-June from end-March.

The country's other big lenders also saw NPL ratios remain steady or improve, in stark contrast to the wider banking sector where, according to data from the China Banking and Insurance Regulatory Commission, the ratio hit 1.86 per cent at end-June - the highest since 2009.

"We expect a large fiscal and monetary stimuli going forward exactly to engineer enough growth to avoid liquidity or financial problems in corporates due to trade war", but this will mostly help the large state-owned banks, said Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis.

"I expect top four Chinese banks to do well in H2 and possibly in 2019," she added. REUTERS