Three of China’s largest lenders report Q3 profit over 6%

BEIJING – Three of China’s biggest lenders posted profit increases of more than 6% in the third quarter, as non-performing loan ratios fell.

The results underscore the resilience of China’s biggest banks in the face of housing market turmoil as defaults on developer loans rise and cash flow problems continue to plague the sector.

The Industrial and Commercial Bank of China Ltd (ICBC), the world’s largest commercial lender by assets, said on Friday its net profit rose 6.8% year-on-year in the third quarter.

Agricultural Bank of China Ltd (AgBank) and Bank of Communications Co Ltd (BoCom) followed suit with net profit up 6.4% and 6.7%, respectively, in their tax returns.

The country’s largest banks are insulated from real estate problems largely thanks to their diversified portfolio compared to smaller lenders.

“Large state-owned banks’ loans to property developers account for 3-7% of their total loans at the end of H122, a lower proportion than small and medium lenders,” said Vivian Xue, director of financial institutions at Ratings. from fitch.

“And the big banks mainly lend to public or high-quality developers,” Xue added.

All three lenders posted slight declines in non-performing loan ratios in the third quarter. ICBC and AgBank both posted NPL ratios of 1.4% at the end of September, down from 1.41% at the end of the previous quarter.

Meanwhile, BoCom’s NPL ratio fell to 1.41% at the end of September from 1.46 at the end of June.

MARGINS

However, all three lenders saw a squeeze in net interest margins – a key indicator of bank profitability.

ICBC’s NIM fell to 1.98% at the end of September from 2.03 at the end of the previous quarter. AgBank and BoCom also saw slight declines over the same period, to 1.96% from 2.02% and 1.50% from 1.53% respectively.

“With overall credit demand remaining weak, Chinese banks need to lower loan interest rates to lend money, putting pressure on their net interest margins,” said Michael Zeng, banking analyst at Daiwa Capital Markets.

Zeng expects the overall industry NIM to tighten further in the fourth quarter.

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