PRES­SURE ON PROF­ITS AS COSTS SURGE

Bad debt con­tin­ues to drag on per­for­mance, say an­a­lysts

New Straits Times - - Business -

HONG KONG/SHANG­HAI

CHI­NESE len­ders last year likely posted their low­est in­ter­est mar­gins since the global fi­nan­cial cri­sis, due to higher costs and fewer lu­cra­tive lend­ing op­tions, with the go­ing set to get tougher as the key gauge of prof­itabil­ity stays un­der pres­sure.

While credit growth in China has re­mained strong, bad debt con­tin­ued to drag on per­for­mance, said an­a­lysts, ahead of an­nual re­ports from len­ders start­ing next week.

Mar­gins have been hit hard af­ter Bei­jing cut bench­mark in­ter­est rates six times in 2014-2015 to re­vive a slow­ing econ­omy.

The pres­sure on net in­ter­est mar­gins — the dif­fer­ence be­tween in­ter­est paid and earned — would con­tinue to weigh on bot­tom lines this year, adding to fi­nan­cial sec­tor vul­ner­a­bil­ity, said an­a­lysts.

At Agri­cul­tural Bank of China, mar­gins likely fell to 2.27 per cent last year, the low­est since at least 2008 and down from 2.66 per cent a year ago.

Among China’s top five len­ders, Bank of China, In­dus­trial and Com­mer­cial Bank of China and China Con­struc­tion Bank are all set to see weaker mar­gins.

China’s cen­tral bank has moved to mar­ginal tight­en­ing this year by rais­ing short-term in­ter­est rates in what econ­o­mists see as a bid to curb cap­i­tal out­flows, and as pol­i­cy­mak­ers look to rein in un­con­trolled lend­ing.

Smaller banks would see a “very sharp re­duc­tion” as liq­uid­ity tightens and they face higher fund­ing costs with the in­ter­bank bor­row­ing rates go­ing up, said Ali­cia Gar­cia Her­rero, chief Asia Pa­cific econ­o­mist at Natixis. Reuters

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