Nation’s largest banks feel wind in their sails as profits rebound

China’s top lenders are report growth in better net interest margins, with the government’s crackdown on shadow financing and high leverage expected to further ther drive recover in 2018. The strong 2017 results suggest gest that China has been successful in pushing smaller lenders to cut their exposure to riskier financing nancing practices – in turn helping reduce competition for the State-backed lenders. and medium-siized Over the past decade, banks small had been making more profits through aggressive lending via shadow-banking channels. But the tide has turned, with core banking emerging as winner from the regulatory clampdown.

According to analysts, Industrial and Commercial Bank of China (ICBC), China’s top bank by market capitalization, has produced the biggest earnings “beat” so far for 2017.

ICBC reported a nonperforming loan (NPL) ratio of 1.55 percent, versus 1.62 percent a year earlier.

Analysts noted that the large gap between that ratio and a 1.26 percent ratio for loans more than 90 days overdue – a key point after which troubled loans are considered bad – suggests ICBC was conservative in its provisioning and could have room to reduce the overall rate further.

NPL ratios also improved for China’s second- and third-largest lenders by assets, China Construction Bank Corp (CCB) and Agricultural Bank of China (AgBank).

AgBank’s NPL ratio fell to 1.81 percent from 2.37 percent, while CCB’s ratio slipped from 1.52 percent to 1.49 percent. The industry-wide level was 1.74 percent.

Banks’ balance sheets are also likely to get a boost from a recent relaxation of bad-loan buffer rules.

ICBC, AgBank and CCB reported a combined net profit of 724 billion yuan ($115.31 billion), up 4.1 percent on 2016, driven by a return to core lending businesses from fee-based incomes.

All three saw their best annual profit growth since 2015.