Date
25 May 2017
Net income grew by single-digit percentages at China's top eight listed banks, except for China Merchants Bank, Francis Chan (inset) says. Photo: Bloomberg
Net income grew by single-digit percentages at China's top eight listed banks, except for China Merchants Bank, Francis Chan (inset) says. Photo: Bloomberg

China banks post weakest 1Q profit since 2008 financial crisis

China’s eight biggest listed banks have posted their weakest first-quarter growth in net profit since the 2008 global financial crisis.

With the exception of China Merchants Bank (03968.HK, 600036.CN), net income for the banks grew by single-digit percentages, down from an average of 12 percent in the same three-month period a year earlier.

For each of the state-run lenders that make up China’s largest commercial banks, growth fell to below 2 percent.

Many suffered from higher bad debt charges, partly due to slowing economic growth, and narrowing net interest margins, the result of interest rate cuts.

This may be the dominant trend for the country’s banks for the rest of this year.

The banks may seek more capital via preference share sales and by lowering dividend payouts this year, after growth in bad debt accelerated for most of the largest lenders in the first quarter.

In the three months to March, ICBC led state bank peers with bad loans surging 16.9 percent, followed by Bank of China at 16 percent.

Bad debt charges rose by an average 46 percent at the eight biggest banks.

This was a drag on retained earnings growth and resulted in capital pressure on these lenders, which may launch plans for more share sales this year.

In the past week, the share prices of the eight largest Chinese lenders listed in Hong Kong retreated an average 1.2 percent, reflecting the weak first-quarter results.

These banks have rallied 11.8 percent on average year-to-date, buoyed by market optimism about China’s monetary easing and investment fund flows from the mainland.

The views expressed in this article are those of Francis Chan, a senior banking analyst at Bloomberg Intelligence.

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