Four of China’s big five state-owned banks have returned healthy profits off the back of a fall in bad debts and lower exposure to risky property clients.
While many of the country’s lenders are still struggling with loans to cash-strapped developers, China’s largest banks have weathered the storm to post their strongest first quarter net profit growth for at least seven years.
Industrial and Commercial Bank of China Limited, the world’s largest lender, reported a 5.7% rise in first-quarter net profit, the highest growth in that period since at least 2015.
China Construction Bank Corp (CCB), Agricultural Bank of China Ltd (AgBank) and China’s Bank of Communications Co Ltd (BoCom) followed suit, with the highest first-quarter net profit growth since at least 2014.
All four reported shrinking or steady non-performing loan ratios.
While first-quarter results show a rebound by the big banks from slowing economic growth brought on by the original Covid-19 outbreak, they now face a resurgence two years later of the more transmissible Omicron variant which is sweeping across China.
China’s financial hub Shanghai has been locked down for four weeks, as the capital Beijing began mass testing.
“The renewed business disruptions from China’s coronavirus-induced lockdowns will continue to weigh on economic sentiment and activity and add to banks’ asset risks,” said Yulia Wan, a banks analyst at Moody’s.
One banker at a top-ten Chinese bank said she had seen the greatest impact among small to medium-sized enterprises.
Russia-Ukraine Conflict Risk
“The smaller borrowers, especially those in manufacturing are really suffering this time round, because they don’t have the cash reserves like some of the bigger companies to be able to keep operations running indefinitely,” she said, adding that her bank was not handing out a blanket pass to those suffering cash-flow issues caused by the lockdowns.
China notified its “Big Four” state lenders on Friday that they can issue loss-absorbing bonds, in a move that would help prevent the spread of any potential instability in its financial system.
China’s lenders have a challenging year ahead.
“Slower GDP growth, lower interest rates, ongoing property sector distress and external uncertainties arising from the Russia-Ukraine military conflict will weaken Chinese banks’ operating environment and asset risk in the coming 12-18 months,” Moody’s said in a note earlier this month.
- Reuters with additional editing by Sean O’Meara