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Industrial & Commercial Bank of China (ICBC) and Agricultural Bank of China posted profit gains of more than 10% in 2021, a recovery year after the outbreak of the pandemic, but now face mounting challenges from a wobbly real estate market and rising Covid-19 infections.
ICBC’s net income rose 10.3% to ¥348.3bn, while Agricultural Bank saw its profit rise 11.7% to to ¥241bn, the lenders said in filings on Wednesday. It was the biggest jump in profit for ICBC, China’s largest lender, since 2012.
China’s $54-trillion banking sector is staging a comeback after policymakers moved to stabilise economic growth and loosened lending restrictions. China’s other megabanks — China Construction Bank, Bank of China and Bank of Communications — have all reported their biggest annual profit growth in nearly a decade.
But challenges are rising for the industry as the debt crisis rippling through the property market and a resurgence in Covid-19 infections, which has forced a partial shutdown in the financial capital Shanghai, threaten growth. Potential fallout from Russia’s invasion of Ukraine is another wild card for the sector. Several financial executives point to external factors and geopolitical risks that could pressure earnings in 2022.
Bocom president Liu Jun said last week that the lender faces the most challenging year in his 30-year banking career in 2022, citing Covid-19, geopolitical risks and shrinking domestic demand.
“The fast profit growth of state banks in 2021 is mainly due to the low base and the rapid growth of asset scale,” said Zhang Shuaishuai, an analyst at China International Capital. “Looking ahead, we anticipate the profit growth will return to a balanced level of 5%-6%.”
Jefferies Financial Group analyst Shujin Chen said in a note on March 27 that the earnings growth for banks probably peaked in 2021.
Borrowing by Chinese businesses plunged in the first quarter and interest rates on loans surged to a record despite the central bank’s efforts to encourage more lending, according to China Beige Book International. Only 16% of the companies surveyed by CBBI, a provider of independent economic data, applied for loans in the quarter of 2022, the lowest since the quarterly poll began in 2012, according to the report.
Still, Bank of China president Liu Jin said on Tuesday that the central government’s effort to boost the economy provides opportunities for growth for the banking sector.
Bloomberg News. More stories like this are available on bloomberg.com
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