Biggest banks to post modest profit

Analysts fear bad loan build-up could increase riskier lending

China’s five biggest listed Stateowned lenders are expected to post modestly higher profits and steady margins for the first six months of the year, as government efforts to boost spending and liquidity underpin loan growth.

The Chinese government has been pumping funds into the banking system and rolling out support measures for local businesses to cushion the impact from an escalating trade war with the US. The two countries implemented tariffs on $34 billion worth of each others’ goods in July.

But analysts fear an unrestrained, credit-fueled growth could worsen a build-up in bad loans, already at nine-year highs, as the world’s No.2 economy cools, undermining the government’s push to reduce riskier lending and rising debts.

Indications on future trends are expected to emerge over the coming weeks as the country’s top banks – Industrial and Commercial Bank of China, China Construction Bank Corp, Agricultural Bank of China, Bank of China and Bank of Communications Co – unveil their January-June results.

Profits for China’s top five banks are expected to have risen by 4.7-7 percent, said analysts. In 2017, the banks saw profits rise 2.8-4.9 percent.

Due to better loan margins, “I expect no major changes either up or down, so [stable] earnings situation,” said Nicholas Zhu, a Moody’s banks analyst, referring to the top-tier banks.

For smaller lenders, however, the story is different, as they are being hit harder by the government’s crackdown on risk in the broader financial system.

By the end of the second quarter, the nonperforming loan ratio for the banking sector reached 1.86 percent, data from the China Insurance and Banking Regulatory Commission shows.

This was the highest jump since 2009.

Bad loans spiked by 183 billion yuan ($26.62 billion), the biggest quarterly jump since the regulator began publishing data in 2003.

Small banks, hurt by the government’s move to cut excess industrial capacity and curb pollution, are seeing a spike in bad loans, with some reporting zero or negative capital adequacy ratios.

The recent easing, ranging from encouraging banks to raise investment in bonds of corporates and other entities to allowing greater access to Medium Term Loan Facilities, should be a silver lining for smaller lenders, analysts said.