Lower provisions help Bocom, ICBC, CCB and Postal Savings Bank post strong first-half profit

Postal Savings Bank of China topped the first-half profit charts among state-owned lenders reporting earnings on Friday
Bank of Communications president optimistic about the full-year outlook as China’s normalising growth provides a supportive environment for banks

Banking & finance

Georgina Lee

Published: 10:00am, 28 Aug 2021

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Four leading state-owned Chinese banks on Friday reported double-digit growth in their first-half net profits, aided by lower loan loss provisions and the country’s steady economic growth.

Postal Savings Bank of China topped the charts with a 21.8 per cent profit increase, followed by Bank of Communications (Bocom) at 15 per cent, China Construction Bank at 11.4 per cent and Industrial and Commercial Bank of China (ICBC) at nearly 10 per cent.

Despite uncertainties surrounding the global economic recovery, the president of Bank of Communications said China’s economic outlook looks bright, which could provide a more supportive environment for banks’ performance for the rest of the year.

“While second-quarter GDP [gross domestic product] growth has lagged market expectation, the overall trend of growth stemming from China’s economic recovery has been set off,” said Liu Jun during the bank’s results briefing on Friday. “We have reached a state where China’s economy is normalising from Covid, despite other [external] uncertainties.”

Bank of Communications’ president said China’s normalising economy will help support the banking sector’s growth in the second half. Photo: Shutterstock

China’s economy grew by 7.9 per cent in the second quarter, which came below analysts’ estimates of 8 per cent.

While analysts generally do not provide first-half profit forecasts for Chinese banks, data disclosed by the banking regulator indicated that the net profit of six state-owned banks, including Bank of Communications, would grow by an overall 9.2 per cent.

First-half net profit at Bank of Communications rose to 42 billion yuan (US$6.47), from 36.5 billion yuan a year ago.

Net interest margin, a key gauge of a bank’s profitability, was flat at 1.55 per cent, while its non-performing loan ratio fell 7 basis points to 1.6 per cent. For the first half, the bank disposed off 43.7 billion worth of NPLs, 27 per cent more than a year ago.

For the second half, Liu said he anticipates that bank’s funding costs should improve, partly because of the central bank’s cut to the reserve requirement ratio by 50 basis points, which should be positive to its net interest margin.

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China’s economy rose 7.9 per cent year on year in the second quarter of 2021

Last month, the People’s Bank of China said the cut in the reserve requirement – the amount that banks must hold as reserves at the central bank – will help banks lower their funding costs by 13 billion yuan a year.

China Construction Bank’s net profit rose 11.4 per cent to 153.3 billion yuan from 137.6 billion yuan.

Bad loan provisions at the bank fell 2.8 per cent to 108.3 billion yuan, while its non-performing loan ratio was stable at 1.53 per cent.

ICBC reported a 9.9 per cent increase in first-half net profit to 163.5 billion yuan, from 148.8 billion yuan a year ago.

Its net interest margin narrowed to 2.12 per cent from 2.2 per cent, while its NPL ratio was stable at 1.54 per cent.

Postal Savings Bank of China’s net profit for the year to June rose 21.8 per cent to 41 billion yuan, from 33.7 billion yuan.

Net interest margin narrowed to 2.37 per cent, from 2.45 per cent, while its NPL ratio fell to 0.83 per cent, down slightly from 0.89 per cent a year ago.

The net interest margin of Chinese banks will continue to improve during the third and fourth quarters this year because of rising loan yields, Chen Shujin, a Jefferies analyst wrote in a recent note.