Hong Kong/Shanghai — China’s largest banks posted double-digit increases in lending income in the third quarter, validating some of the earnings optimism that has fuelled a rally in their shares this year.

Industrial & Commercial Bank of China — which owns about a fifth of SA’s Standard Bank — Bank of China, and Agricultural Bank of China (AgBank) on Monday reported average net interest income gains of 15%. The figures come after China Construction Bank (CCB) reported a 10% rise last week.

For the most part, the four banks’ results reflected improvements in interest margins and asset quality, although Bank of China’s figures were marred by a jump in impairment losses. Its shares slumped 3% in Hong Kong, the most in two months, as of 10.24am local time, while ICBC dropped 1.7% and China Construction Bank lost 0.8%. AgBank gained 0.5%.

"People are selling shares after a recent rally of Chinese banks," said Marco Yau, a senior analyst at CEB International Investment. "Investors have been expecting an improvement in asset quality and a rebound in margins since the beginning of the year and that has supported the momentum."

This year’s rally drove the Big Four bank’s average price-to-book ratio to the highest level since late 2015.

The lenders have benefited from some of the government efforts since April to curtail risks from China’s almost $30-trillion of debt. As authorities moved to increase policy co-ordination among the country’s regulators, they also sought to curb interbank borrowings — a step that has boosted margins at the big banks as net lenders into that market.

ICBC, the world’s largest lender by assets, said its net interest margin rose to 2.17% by the end of September, compared with 2.16% in the first half, while Bank of China and China Construction Bank also reported increases. AgBank did not disclose its latest net interest margin (NIM), which is a measure of lending profitability.

A growing appetite for mortgages and infrastructure loans was helping drive lending income at the major banks, for now at least, said Chen Shujin, a Hong Kong-based analyst at Huatai Securities.

"Loan demand is very strong," Chen said. "But overall loan growth will slow next year. Unlike in many other countries, China’s loan growth largely depends on supply. And the PBOC [People’s Bank of China] wants to lower leverage," she said.

"This quarter represents the banks’ efforts to boost results to complete full-year targets," said Hao Hong, chief strategist and head of research at Bocom International Holdings in Hong Kong. "Banks are loosening credit, despite all the talk about deleveraging."

Bank of China’s impairment losses in the third quarter jumped 63% to 22.8-billion yuan, eroding most of the gains the bank generated in lending income. And for the first nine months of the year, Bank of China’s nonperforming loan ratio was 1.41%, edging up from 1.38% on June 30.

The other banks logged lower non-performing loan (NPL) ratios.

After three years of virtually flat profits, earnings momentum at the banks should pick up from the third quarter onwards, Credit Suisse analysts said in an October 24 report. Industry net interest margins should increase in the second half of 2017, analysts at Goldman Sachs Group and Huatai Securities have said.


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