Top China banks see second half gains, beat profit expectations in first half

BEIJING (Reuters) - Three of China's top five state-owned banks, including Industrial and Commercial Bank of China Ltd (ICBC) 601398.SS, expect their core lending business to improve during the rest of this year, after first-half profit growth topped expectations.

FILE PHOTO: People walk past the headquarters of the ICBC bank in Beijing, China June 12, 2017. REUTERS/Thomas Peter/File Photo

Net interest margins (NIM) - the difference between interest paid and earned by banks - widened at both ICBC and fourth-ranked Bank of China Ltd (BoC) 601988.SS for the first time in more than two years, following six benchmark interest rate cuts in 2014-15.

BoC's 3988.HK second-quarter profit jumped 23 percent to 57 billion yuan ($8.65 billion), far exceeding analysts' estimate for an increase of just 3.7 percent.

“NIM for the full year will proceed on a steady or positive trajectory,” said BoC Vice President Zhang Qingsong, while ICBC Chairman Yi Huiman said asset quality will continue to improve.

ICBC’s net interest margin increased to 2.16 percent by end-June, from 2.12 percent at end-March, while BoC’s rose to 1.84 percent from 1.80 percent over the period.

Wu Wei, Chief Financial Officer at Bank of Communications Co Ltd (BoCom) 601328.SS3328.HK, said the fifth-ranked lender's NIM is expected to stabilize or possibly widen in the second half.

Improving asset quality and better operating efficiency have helped China’s larger lenders rebound from two years of declining profitability, said Ken Shih, banking analyst at DBS, ahead of the results announcements.

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Net profit at ICBC 1398.HK also beat analysts' expectations, rising 2.3 percent in the second quarter from a year ago, to 77.2 billion yuan, according to Reuters calculations based on the lender's six-month results.

China Construction Bank Corp (CCB) 0939.HK, Agricultural Bank of China Ltd 1288.HK601288.SS and BoCom also turned in consensus-beating quarterly profit numbers.

All five lenders reported lower or steadying non-performing loan (NPL) ratios at end-June.

“The demand for loans is stronger than in past years,” said Gao Yingxin, also a BoC Vice President. “Meanwhile, local governments are also increasing investment, and Chinese companies are going overseas, so BoC’s loans in the first half grew relatively fast.”


But there are concerns that lenders may face headwinds later this year from higher funding costs and slower loan growth amid a shadow banking crackdown.

Analysts estimate some banks have used 80 percent of their yearly credit quota in January-June, versus the usual 60 percent, amid a regulatory push to bring shadow financing activities to the main loan book, meaning lenders will have less money with which to make profits in the second half.

BoCom has said it plans to shore up margins by reducing the cost of liabilities and operations in the second half, while BoC said it expects asset quality to remain stable for the year.

BoC’s NPL ratio fell to 1.38 percent at end-June, from 1.45 percent at end-March. However, the bank said there was still pressure to resolve non-performing loans, and its capital ratios - the money put aside as a buffer against losses - fell.

ICBC’s NPL ratio dipped to 1.57 percent from 1.59 percent over the period.

Reporting by Shu Zhang and Matthew Miller, writing by Engen Tham; Editing by Himani Sarkar and Ian Geoghegan