Nov 01, 2018 08:19 PM

Big Banks, Big Profits

China’s four largest state-owned lenders reported higher profits, despite tougher regulations, slowing economic growth and rising bad debts.  Photo: VCG
China’s four largest state-owned lenders reported higher profits, despite tougher regulations, slowing economic growth and rising bad debts. Photo: VCG

Profits at China’s four biggest state-owned banks appeared to hold up well in the third quarter despite slowing economic growth, tougher regulation, and big increases in bad debt write-offs.

Industrial and Commercial Bank of China Ltd. (ICBC), the country’s biggest lender by assets, reported its third-quarter net profit rose 5.6% year-on-year to 79.2 billion yuan ($11.4 billion), faster than the 4.9% increase in the first half of the year. The bank, which is listed in Shanghai and Hong Kong, released its earnings report on Oct. 30, the last of the big four banks to do so.

Agricultural Bank of China Ltd. (ABC) saw the highest earnings growth at 8.6%, up from 6.6% in the first half. China Construction Bank Corp.’s (CCB) net income increased 6.6%, marginally faster than in the first six months, while Bank of China Ltd. (BOC) reported the weakest gain, up 5.7% year-on-year compared with 5.2% in the first six months.

Investors were expecting a decent performance from the banks, and although their shares have fallen slightly over the past month amid the general stock market rout, they have outperformed. The benchmark Shanghai Composite Index dropped 7.7% in October. In contrast, BOC’s A-shares were flat, ABC dipped by around 0.5%, CCB fell about 1.2% and ICBC lost 2.4%.


The banks managed to keep the ratio of nonperforming loans (NPLs) to total outstanding loans steady even though the total value of bad loans rose. That’s because higher lending along with increased write-offs and disposals kept them in check.

CCB’s NPLs rose by 9.5 billion yuan from the end of 2017 to 202 billion yuan, although its NPL ratio at the end of September fell by 0.02 percentage points to 1.47%. ICBC’s bad loans rose by 13 billion yuan from the end of 2017, but its NPL ratio dropped by 0.02 percentage points over the same period to 1.53%, while BOC’s NPL ratio fell to 1.43%. Among the four lenders, ABC’s nonperforming loans actually fell by 5.8 billion yuan from the end of 2017 to 188.3 billion yuan, although it reported the highest NPL ratio at 1.6%, but that was a drop of 0.21 percentage points from the end of last year.

Regulators have stepped up efforts to rein in the risks associated with banks’ lending practices. It’s forced them to bring off-balance sheet loans back onto their books and comply with new reporting standards on the classification of assets and accounting for impairments in their value.

That has forced banks to increase provisions for losses on loans, which has held back profit growth. ABC reported a 40% year-on-year surge in impairment charges in the third quarter, while CCB saw a 24.1% jump. BOC’s charges rose 18.2%, while ICBC had the lowest increase at 12.2%.

The government’s crackdown on the sale of wealth management products (WMPs) by banks has dented income lenders earn from fees and commissions for several quarters, and the third quarter was no exception. At CCB, for example, although total net fee and commission income rose by 7.6% year-on-year in the third quarter, the lender said that income from selling WMPs fell, but it did not disclose the scale of the drop. BOC’s net fee and commission income fell 1.9% year-on-year in the third quarter, although that was an improvement on the 4.4% drop in the second quarter.

Although the government has for months been urging banks to increase lending, especially to small companies and the private sector, growth in outstanding credit at the big four banks was sluggish. For the banking sector as a whole, outstanding yuan-denominated loans at the end of September stood at 133.27 trillion yuan, 10.9% more than at the end of last year. But at CCB, outstanding loans and advances to customers at the end of September were just 6.3% higher than at the end of last year at 13.7 trillion. ICBC’s outstanding loans were 6.97% higher at 14.9 trillion yuan, while BOC’s loans and advances rose 7.25%. ABC put in the best performance, with loans and advances rising 9.5% to 11.3 trillion yuan.

The big banks’ bottom lines continued to benefit from a steady or rising net interest margin (NIM), a key profitability metric that measures the difference between a bank’s income from lending and its funding costs.

CCB’s NIM was unchanged from the end of the second quarter at 2.34% but was up from 2.16% a year earlier. BOC’s edged up to 1.89% from 1.88% in the previous quarter and from 1.85% a year earlier, while ICBC’s was unchanged quarter-on-quarter at 2.30% and up from 2.17% a year earlier. ABC did not provide a third-quarter figure.

Contact reporters Charlotte Yang ( and Timmy Shen (

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