China's big five state banks post fastest quarterly profit growth in years
Five of China's largest state-owned banks reported quarterly profit growth of between 6 and 11 per cent, their fastest since 2021 or 2022. Analysts cite stabilising net interest margins and steady asset quality, while warning of emerging risks from tech-sector lending and bond-market volatility.
Five of China's largest state-owned banks have reported quarterly profit growth of between 6 per cent and 11 per cent, their fastest since 2021 or 2022, according to company filings published on 30 October. The results, which buck broader economic headwinds, were supported by stabilising net interest margins and steadier asset quality, analysts said.
Industrial and Commercial Bank of China (ICBC), the world's largest lender by assets, said third-quarter net profit rose 10 per cent year-on-year. Agricultural Bank of China, China Construction Bank (CCB) and Bank of Communications reported similar growth of 10.8 per cent, 9.8 per cent and 10.1 per cent, respectively. Bank of China, which has the greatest overseas exposure among the five, posted a comparatively slower 6.4 per cent increase amid trade tensions and foreign exchange swings.
The profit growth was driven partly by the repricing of higher-cost deposits that began at the start of the year, though that benefit is fading in the second half. Recent monetary easing and mortgage interest subsidies have helped lower funding costs and support margins, analysts said. Net interest margins held steady in the third quarter at ICBC, Agricultural Bank of China and Bank of China, while they edged up at Bank of Communications. CCB said its margin fell slightly to 1.36 per cent.
“An earlier-than-expected recovery in net interest margins, combined with broadly stable credit costs, positions these banks for a faster profitability rebound compared to smaller banks in the sector,” said Elaine Xu, a director at Fitch Ratings. She added that the big banks’ strong access to high-quality central and local state-owned enterprise borrowers provides a more favourable risk-adjusted return relative to most domestic peers.
Non-performing loan ratios were overall stable at all five lenders as they stepped up bad-debt disposals. ICBC, CCB and Bank of China said their NPL ratios remained flat at the end of September compared with three months earlier. Agricultural Bank of China and Bank of Communications reported slight declines to 1.23 per cent and 1.29 per cent, respectively. Impairment charges rose as lenders moved to replenish loan-loss provisions while revenue recovered.
Analysts warned of emerging asset quality risks from loans to technology and innovation-related sectors, as banks respond to Beijing’s call to boost lending to these industries. “Loan growth to such industries remains high, with asset risks emerging gradually as enterprises in these emerging sectors have not been tested through a business cycle,” said Nicholas Zhu, a banking analyst at Moody's. CCB said the growth rate of its sci-tech loans exceeded its average loan growth rate.
Bond gains remained a key driver of the big banks’ earnings in the quarter, given their longer-duration bond portfolios. However, Xing Zhaopeng, senior China strategist at ANZ, said the support cannot be lasting as bond yields are very low. The state lenders are expanding beyond fixed income into direct equity investments through major chip sector initial public offerings. Bank of Communications reported a 22.7 per cent year-on-year increase in net trading gains for the first nine months of the year, driven largely by fair value increases following CXMT Technology's July IPO.