China’s five largest state-owned banks reported their fastest quarterly profit growth since 2021 or 2022, despite weak credit demand and an economy affected by the prolonged property crisis. Net profit growth ranged from 6% to 11% in the third quarter, according to company filings.
Industrial and Commercial Bank of China reported a 10% year-on-year increase in net profit. Agricultural Bank of China, China Construction Bank and Bank of Communications posted growth of 10.8%, 9.8% and 10.1%, respectively. Bank of China recorded the slowest increase among the group, at 6.4%, amid trade tensions and foreign-exchange fluctuations.
The results were helped by the repricing of higher-cost deposits that began earlier in the year. Although that benefit is expected to weaken in the second half, monetary easing and mortgage-interest subsidies have reduced funding costs and supported margins, analysts said.
Net interest margins remained stable at ICBC, Agricultural Bank of China and Bank of China, while Bank of Communications reported a slight increase. China Construction Bank’s margin edged down to 1.36%. Fitch Ratings director Elaine Xu said the earlier recovery in margins and broadly stable credit costs could allow the largest banks to achieve a faster profitability rebound than smaller lenders.
Non-performing loan ratios were broadly stable as the banks increased bad-debt disposals. The ratios were unchanged at ICBC, CCB and BOC, while they declined slightly at Agricultural Bank of China and Bank of Communications, reaching 1.23% and 1.29%, respectively. However, impairment charges increased as the lenders rebuilt loan-loss provisions.
Analysts warned that asset-quality risks could gradually emerge in technology and innovation-related lending, an area where banks are expanding credit in response to government priorities. Moody’s banking analyst Nicholas Zhu said companies in these sectors had not yet been tested through a full business cycle.
Bond gains also contributed significantly to earnings, supported by the banks’ holdings of longer-duration bonds. ANZ senior China strategist Xing Zhaopeng cautioned that this source of profit may not be sustainable because bond yields are already very low.
The state-owned banks are also moving into direct equity investments through major semiconductor initial public offerings. Strong debut prices boosted fair-value gains during the quarter, but subsequent share-price declines increased volatility. Bank of Communications said its net trading gains rose 22.7% year on year in the first nine months, driven largely by fair-value increases following CXMT Technology’s July IPO.
Sources: Investing.com News.