Big Chinese banks shake off debt woes

Three of China’s largest banks posted better-than-expected profit growth in 2017 as a strengthening economy curbed soured loans and the government’s campaign to cut debt boosted their lending margins.

On Tuesday, Industrial & Commercial Bank of China (ICBC) reported a 3% increase in net income in 2017, while on Monday Agricultural Bank of China posted a 5% gain. China Construction Bank, which also reported earnings on Tuesday, said its net profit rose 4.7%.

All three lenders beat analysts’ estimates.

China’s top five banks, which control more than a third of the nation’s $40-trillion in banking assets, are staging a comeback, thanks to improvements in borrowers’ repayment ability and higher demand for loans.

They are also benefiting from President Xi Jinping’s crackdown on excessive debt, which is forcing smaller banks to turn to big lenders to borrow money.

ICBC’s net interest margin widened by six basis points, while the spread expanded by three basis points at Agricultural Bank. Both banks’ nonperforming loan ratios dropped for the first time since 2013 and senior executives told media that they expected the benign asset quality trend to continue.

“The major nonperforming loan indicators in 2017 showed both the present and the future trend improved,” ICBC chairman Yi Huiman told reporters at a briefing in Hong Kong. “That shows that our credit policy since 2013 is effective.”

Together with China Construction Bank, Bank of China and Bank of Communications combined profits at the big five probably grew about 3% in 2017, the fastest expansion since 2014, according to analysts’ estimates. That is projected to pick up to about 8% in 2018 as rising global interest rates boost margins.

Their results are partly flattered by a poor 2015 and 2016, when concerns intensified about rising bad loans across China’s financial sector. Asset quality has since improved as economic growth accelerated in 2017 for the first time in seven years. Another sign of optimism emerged in March, when the regulator was said to have lowered bad-loan provisions to a minimum 120% from the previous 150%, freeing up more cash for lending.