By Ziyi Tang, Selena Li and Engen Tham
BEIJING (Reuters) – China’s Big Five lenders posted annual net profit growth of over 3.5% this week but warned the fundamentals for the country’s recovery were “not yet solid”.
China’s Bank of Communications Co Ltd (BoCom) and Bank of China (BoC) each reported just over 5% annual net profit growth on Thursday.
Even higher numbers came from Agricultural Bank of China Ltd (AgBank) on Thursday and China Construction Bank Corp on Wednesday, both of which posted annual net profit growth of over 7%.
The Industrial and Commercial Bank of China (ICBC), the world’s largest listed lender by assets, delivered 3.5% annual net profit growth.
The Big Five’s loan books “are well diversified and adequately funded,” said Ming Tan, a director at S&P Global Ratings.
Despite the good results, all five warned of global banking turmoil and domestic risks.
“The domestic economy recovered stably, but the basis for the recovery was not yet solid,” AgBank said in its IPO filing.
Over at BoCom the focus was on the challenges of the real estate market.
“Liquidity stress in the real estate industry will take some time to recover,” said Lin Hua, BoCom’s chief risk officer, adding that the ongoing disruption will hurt the quality of mortgage assets.
Last year, China’s real estate sector was rocked by back-to-back developer bond and loan defaults, as previous policy initiatives to curb debt led to liquidity squeezes across the industry.
“Pressures on the net interest margin and pockets of risk in the real estate sector and some weak state-owned companies remain the main challenges,” Ming said.
Lenders reiterated their distance from struggling Silicon Valley Bank and Credit Suisse, with BoCom saying it does not hold additional Tier 1 Credit Suisse bonds.
While banks said the impact on their operations would be muted, they acknowledged that volatility in western markets could pose risks.
The story goes on
“In 2023, the global economic landscape is even more complex and uncertain as major economies face heightened risk of recession and emerging markets face heightened volatility in currencies, capital flows and financial markets,” BoC said in its filing on Thursday.
NPL’s
While all five lenders saw constant or falling non-performing loan ratios, they also saw shrinking net interest margins (NIM), a key measure of bank profitability.
The biggest challenge for China’s banks this year is pressure from central and local governments to support the economy by “lending to projects that may not provide a reasonable return on investment or any rate of return,” said Redmond Wong, metropolitan market strategist China at Saxo Markets.
CCB “has accelerated politically backed real estate projects,” said Cheng Yuanguo, the bank’s chief risk officer.
($1 = 6.8782 Chinese renminbi yuan)
(Reporting by Ziyi Tang, Selena Li, and Engen Tham; Editing by Bernadette Baum, Jason Neely, and Andrew Heavens)
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