Chinese megabanks flagged further pressure on margins due to lower interest rates after reporting nearly flat income growth in the first quarter of 2023.
Industrial and Commercial Bank of China Ltd., the world's biggest bank by assets, reported a net profit of 90.16 billion yuan in the three months to March 30, almost unchanged from 90.15 billion yuan last year. The 2022 figures were restated after the bank adopted a new accounting standard.
China Construction Bank Corp. reported a 0.3% year-over-year increase in its net profit to 88.74 billion yuan, while Agricultural Bank of China Ltd. reported a 1.8% gain to 71.55 billion yuan. Bank of China Ltd. said net profit in the quarter was up 0.5% to 57.66 billion yuan.
All four banks reported a decline in their net interest margins (NIMs), which was attributed to the lagged effects of falling interest rates and higher term deposits.
"The trend of interest margin has industrywide and stage-specific characteristics," ICBC said in its earnings statement. "The bank will make concerted efforts at both ends of assets and liabilities, and continuously optimize the structure to keep the NIM within a reasonable range," it said.
Easing bias
The People's Bank of China held its benchmark loan prime rates steady in the past two quarters after a series of cuts to support the economy's recovery from the pandemic. The central bank maintained an easing bias, cutting the reserves banks need to keep with the central bank even as most major central banks led by the US Federal Reserve tightened monetary policy since last year to tamp inflation.
China's banks, as the main source of funding for the world's second-biggest economy, are likely to keep growing their loan books to support the government's economic growth target of around 5% in 2023. Gross domestic product grew 3.0% in 2022, missing the target of 5.5%.
Structural factors are improving amid "the emergence of policy effects and the recovery of the economy," BOC International Securities said in an April 26 research note.
Stable asset quality
ICBC and CCB reported nonperforming loan (NPL) ratio of 1.38% in the first quarter of 2023, unchanged from a year ago. Agricultural Bank's NPL ratio remained unchanged from the previous year at 1.37%. BOC reported a 14 basis points decline in its NPL ratio to 1.18%.
The property market recovery is the major challenge to banks' loan growth and asset quality.
"Although Beijing introduced a slew of policy support for the sector, property investment, a lagged indicator of the property sector, will likely take more time to recover," Nomura said in a note dated April 28. "We caution that mortgage prepayments sentiment and long-term property issues will likely limit the pace of recovery," Nomura said.
During the first quarter of 2023, China’s property investment fell 5.8% year over year, already the best since mid-2022, while property sale rose for the first time in more than a year at 4.1%, according to the National Bureau of Statistics.
As of April 27, US$1 was equivalent to 6.92 Chinese yuan.
