China's big banks post fastest quarterly profit growth in years as margins stabilise

By Ziyi Tang and Selena Li

BEIJING/Hong Kong, Oct 30 (Reuters) - Five of China's largest state-owned banks reported quarterly profit growth of between 6% and 11%, supported by stabilising net interest margins (NIM) and steadier asset quality, even as a slowing economy continued to weigh.

Each of the five lenders posted its fastest quarterly profit growth since 2021 or 2022, bucking the broader economic headwinds and building on their resilient performance in the first half of the year.

Profit growth was driven partly by the repricing of higher-cost deposits that began at the start of the year. That benefit is fading in the second half, but recent monetary easing and mortgage interest subsidies help lower funding costs and support margins, analysts said.

BANK-BY-BANK RESULTS

Industrial and Commercial Bank of China 601398.SS, , the world's largest lender by assets, reported on Friday that third-quarter net profit rose 10% year-on-year.

Agricultural Bank of China 601288.SS, , China Construction Bank 601939.SS, and Bank of Communications 601328.SS, reported similar net profit growth rates of 10.8%, 9.8% and 10.1%, respectively.

Bank of China 601988.SS, , with the greatest overseas exposure among the big five, reported a comparatively slower 6.4% growth amid trade tensions and foreign exchange swings.

ECONOMY 'MAINTAINS OVERALL STABILITY'

The results suggest the big lenders are recovering from years of squeezed profitability amid a protracted property crisis, although weak credit demand and a slowing economy continued to have a negative impact.

Policymakers stepped up targeted monetary support in September, which modestly improved credit demand. But the measures are unlikely to drive a significant recovery in lending, or notably lift mortgage growth, analysts said.

"China's economy maintained overall stability, moving towards innovation and upgrading, with relatively fast growth in production and supply, strong foreign trade growth, and new achievements in high-quality development," CCB's management said in the company filing.

"However, it still faces difficulties and challenges such as strong supply and weak demand," it said.

CREDIT COSTS 'BROADLY STABLE'

Net interest margin held steady in the third quarter at ICBC, AgBank and BOC, while it edged up at BoCom. CCB said its NIM slightly fell to 1.36%.

"An earlier-than-expected recovery in NIM, combined with broadly stable credit costs, positions these banks for a faster profitability rebound compared to smaller banks in the sector," said Elaine Xu, a director at Fitch Ratings.

Their strong access to high-quality central and local state-owned enterprise (SOE) borrowers provides a more favourable risk-adjusted return relative to most domestic peers, said Xu.

HIGHER IMPAIRMENT CHARGES

Non-performing loan (NPL) ratios were overall stable at all five lenders as they stepped up bad-debt disposals, although pressure on retail asset quality may persist.

ICBC, CCB and BOC said the NPL ratios remained flat at the end of September compared with three months earlier. AgBank and BoCom fell slightly to 1.23% and 1.29%, respectively.

Impairment charges rose as lenders moved to replenish loan-loss provisions while revenue recovered.

Analysts also warned of emerging asset quality risks from loans to technology and innovation-related sectors, as banks respond to Beijing's call to boost lending to these industries.

"Loan growth to such industries remains high, with asset risks emerging gradually as enterprises in these emerging sectors have not been tested through a business cycle," said Nicholas Zhu, a banking analyst at Moody's.

CCB said the growth rate of its sci-tech loans – lending to what Beijing defines as science and technology firms – exceeded its average loan growth rate.

CHIP EQUITY BETS ADD VOLATILITY

Bond gains remained a key driver of the big banks' earnings in the quarter, given their longer-duration bond portfolios, analysts said.

"A lot of Chinese banks rely on bond gains to secure profits," said Xing Zhaopeng, senior China strategist at ANZ. "But the support cannot be lasting as bond yields are very low now."

The state lenders are expanding beyond fixed income into direct equity investments, through major chip sector initial public offerings.

While surging debut prices boosted quarterly fair value gains, subsequent fourth-quarter share price tumbles have introduced greater volatility.

Bocom reported a 22.7% year-on-year increase in net trading gains for the first nine months of the year, which it said driven largely by fair value increases following CXMT Technology's July IPO.