China's big banks post Q3 profit gains, squeeze on net interest margins

BEIJING/SHANGHAI (Reuters) - China's largest lenders posted increases in their third-quarter profits on Wednesday, mostly on reduced provisions, with slimmer net interest margins for some.

The frontrunner was Agricultural Bank of China (OTC:ACGBF ) Ltd (AgBank), which reported a 5.88% rise in third-quarter net profit. 

Four of the country's other biggest banks also reported profit increases of more than 1% in the third quarter. Chinese lenders have been struggling with shrinking profits and lukewarm loan demand amid a sluggish post-COVID recovery in the world's second-largest economy and a protracted property sector crisis.

AgBank, Industrial and Commercial Bank of China Ltd (ICBC) and China Construction Bank (OTC:CICHF ) Corp (CCB) all posted sluggish growth or a drop in pre-provisions operating income, indicating the banks reduced provisions to boost net profit growth.

AgBank posted a milder 2.9% year-on-year growth in post-provision operating profit in the third quarter.

ICBC, the world's largest commercial lender by assets, said net profit grew 3.8% year-on-year in the third quarter. The lender's net trading income also rose 47% to 5.56 billion yuan ($781 million) in the third quarter from a year earlier.

ICBC did not say what prompted its trading gains, which came before the recent rally in Chinese stocks.

The Bank of China (BoC), the Bank of Communications and CCB reported quarterly net profit gains of 4.38%, 1.2% and 3.79%, respectively.

ICBC rose 0.2% in Shanghai on Thursday morning after the third-quarter results were out. AgBank rose 0.17%, while BoC fell 0.2%. China's mainland banking index fell 0.57%.

NET INTEREST MARGINS

Three of the lenders reported a squeeze on net interest margins (NIM), a key gauge of profitability, and analysts said the pressure will continue as government policy initiatives come into play.

BoC posted a NIM of 1.41% at the end of September, from 1.44% at the end of June. BoCom reported a reduction in NIM to 1.28%, from 1.29% over the same period. 

CCB said NIM fell to 1.52% at the end of September from 1.54% at end-June.

"We expect net interest margin (NIM) pressure to persist in the fourth quarter, as the measures announced by the Chinese authorities to support the economy will likely add to pressure on bank profitability," said Vivian Xue, a director at Fitch Ratings.

"The effect of the mortgage rate cuts and loan prime rate cuts on NIM will be mitigated by reductions in reserve requirement ratios and deposit rates, but it is unclear whether they will be sufficient to revive credit demand," she said.

China's major state-owned lenders earlier this month cut deposit rates for the second time this year, as part of efforts to ease profitability pressure in the wake of a broader stimulus package to revive the economy. 

The nation's financial regulator last month also said it planned to boost the capital strength of the top lenders, in a move to help them manage strains in asset quality and prevent systemic financial risks.

The major banks' demand for capital raising is expected to persist in coming years, given the need to support the economy and additional capacity requirements as global systemically important banks, said Xue.



Four of the lenders posted steady non-performing loan (NPL) ratios from the end of this quarter relative to the end of June. BoC is the exception, reporting a slight rise in NPL ratios to 1.26% at end-September, from three months ago at 1.24%.

($1 = 7.1221 yuan)

Source: Investing.com