China’s Big Five banks post healthy results, warn of shaky recovery

By Ziyi Tang, Selena Li and Engen Tham

BEIJING (Reuters) – China’s Big Five lenders posted above 3.5% annual net profit growth this week, but warned that the foundations of the country’s recovery were “not yet solid”.

China’s Bank of Communications Co Ltd (BoCom) and Bank of China (BoC) both posted just over 5% annual net profit growth on Thursday.

Even higher figures came from the Agricultural Bank of China Ltd (AgBank) on Thursday and China Construction Bank Corp on Wednesday, which both posted over 7% annual net profit growth.

Industrial and Commercial Bank of China (ICBC),, the world’s largest listed lender by assets, came in at 3.5% annual net profit growth.

The loan books of the Big Five “are well diversified and adequately provisioned”, Ming Tan, a director at S&P Global Ratings, said.

Despite the healthy results, all five warned of global banking turmoil and domestic risks.

“The domestic economy saw stable recovery, but the foundation for recovery was not yet solid,” AgBank said in its filing on the stock exchange.

Over at BoCom, the focus was on property market challenges.

“The liquidity stress of the property industry will still take time to recover,” said Lin Hua, chief risk officer at BoCom, adding that continuing disruption will impact mortgage asset quality.

Last year, China’s property sector was rocked by successive developer bond and loan defaults, as earlier policy initiatives to rein in leverage led to cash crunches across the industry.

“Net interest margin pressure and pockets of risks in the property sector and some weak state-owned-enterprises remain the main challenges,” Ming said.

The lenders reiterated their distance from battered Silicon Valley Bank and Credit Suisse, with BoCom saying it does not hold Credit Suisse additional tier 1 bonds.

While the banks said the impact on their operations would be muted, they acknowledged Western market volatility could pose risks.

“In 2023, the global economic situation is facing even more complexity and uncertainty, with major economies under increased risk of recession and emerging markets exposed to heightened volatility in currency, capital flow, and financial markets,” BoC said in its Thursday filing.

NPLs

While all five lenders posted steady or falling non-performing loan ratios, they also logged shrinking net interest margins (NIM), a key gauge 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 be providing reasonable return on capital” or any return, Redmond Wong, Greater China market strategist at Saxo Markets, said.

CCB “has fast-tracked policy-supported real estate projects,” Cheng Yuanguo, chief risk officer at the bank, said.

($1 = 6.8782 Chinese yuan renminbi)

(Reporting by Ziyi Tang, Selena Li and Engen Tham; editing by Bernadette Baum, Jason Neely and Andrew Heavens)