Bank of China, ICBC see profit growth drop sharply as slowing economy, property crisis take a toll
- Both lenders comfortably missed analysts’ estimates for net profit amid an escalating property crisis that has dampened creditor confidence
- They each reported a small drop in their non-performing loans ratio in the first half of the year
ICBC, the world’s largest bank with total assets of 43.67 trillion yuan (US$5.99 trillion), reported a 1.2 per cent year-on-year gain in net profit to 173.74 billion yuan in the six months ending June 30. The lender missed expectations of a 6.8 per cent increase to 183.2 billion yuan by analysts polled by Bloomberg.
The results came amid an escalating property crisis that has dampened creditor confidence and threatens the health of financial institutions.
Real estate-related NPLs, an indicator of a bank’s exposure to property risks, rose to 51.22 billion yuan for ICBC, compared with 44.53 billion yuan last December. The value of the lender’s non-performing residential mortgages rose to 26.74 billion yuan from 25.39 billion yuan earlier this year.
BOC posted 43.2 billion yuan worth of real estate-related NPLs, compared to 56 billion yuan in December. Its residential mortgages edged down to 6.37 trillion yuan from 6.43 trillion yuan in December. Its bad residential mortgage was not separately tallied.
Major state-owned banks are faced with mounting pressure to protect their net interest margins (NIM), a key gauge of profitability, as they respond to Beijing’s call to provide affordable mortgages and inject liquidity into China’s debt-ridden property market.
ICBC’s NIM fell by 31 basis points to 1.72 per cent, while BOC reported a 9 basis point decrease to 1.67 per cent. Chinese commercial banks’ NIM has dropped to a record low of 1.74 per cent as of June this year.
Despite signals from Beijing to protect bank profit and prevent the property crisis from spilling over into the broader financial economy, lenders are faced with imminent downward pressure on their margins.
“We will provide reasonable and moderate financing to property developers … while supporting [rules around] residential mortgages, under the condition that our actions are compliant, and that the risks are controllable,” said Liu Jiandong, BOC’s chief risk officer.
“In the future, we will make sure to implement the PBOC and relevant ministries’ requirements on easing existing and new mortgage loans in order to serve our individual clients.”
ICBC shares dropped 0.6 per cent to close at HK$3.57 on Wednesday, while BOC shares fell 0.4 per cent to HK$2.70. The broader Hang Seng Index was almost unchanged.