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Chinese banks' profit growth slowed, risk exposure grew in first half but bad debts fell 2022-09-07
Chinese Banks' Profit Growth Slowed, Risk Exposure Grew in First Half But Bad Debts Fell
Chinese banks remained highly profitable in the first half but, overall, profit growth slowed, capital-to-risk ratios declined and yet bad debts were reduced, according to Yicai Global research.
Chinese lenders raked in CNY1.05 trillion (USD151.4 billion) in net profit in the six months ended June 30, according to the semi-annual earnings reports released by 42 banks listed in Shanghai or Shenzhen.
Of these, 60 percent, or 25 lenders, logged slower profit growth, while 78.5 percent, or 33 banks, posted a decline in their capital adequacy ratios and 73.8 percent, or 31 lenders, reported an improvement in their non-performing loan ratios, according to the reports.
All six state-owned large banks reported slower profit growth in the first half than a year ago. Industrial and Commercial Bank of China's profit growth dropped to 4.9 percent from 9.87 percent this time last year. China Construction Bank's profit growth slowed to 5.44 percent from 11.39, that of Agricultural Bank of China to 5.45 percent from 12.4 percent, that of Bank of China to 6.3 percent from 11.79 percent, that of Postal Savings Bank of China to 14.88 percent from 21.84 percent and that of Bank of Communications to 4.81 percent from 15.1 percent.
Ping An Bank performed the best among joint-stake banks, with profit surging 25.6 percent. China Merchant Banks, Industrial Bank and Citic Bank all posted double-digit growth. China Minsheng Bank, which has a great deal of risk exposure in the real estate sector, was the only one to report negative growth at minus 7.2 percent.
Twenty-six out of 37 regional banks achieved growth in net profit. Nineteen of them logged double-digit growth, and profit at 18 banks expanded at a faster clip than the same period last year. The most profitable of all lenders was Bank of Hangzhou with a growth rate of 31.67 percent. Bank of Chengdu, Bank of Jiangsu, and Wuxi Rural Commercial Bank also did well with profit growth rates at over 30 percent, much higher than the same period last year.
Greater Risk Exposure
The capital adequacy ratio, or the proportion of a bank's capital to its risk, fell in nearly 80 percent of banks. These included three state-owned banks, namely Agricultural Bank of China, Postal Savings Bank of China, and Bank of Communications, eight joint-stock banks including China Merchants Bank and 22 small and medium-sized regional banks including Bank of Ruifeng, Xiamen Bank, Qilu Bank, and Bank of Ningbo.
Bank of Communication was the poorest performing of the state-owned banks. Its capital adequacy ratio slid 0.96 percentage point to 14.49 percent while its tier one and core tier one capital adequacy ratios declined 0.81 percentage point and 0.63 percentage point, respectively.
The drop in the capital adequacy ratio of banks has something to do with rising pressure on the asset quality of commercial banks, an industry insider told Yicai Global. “Greater efforts to dispose of nonperforming loans result in weaker profitability and more risky assets all of which are likely to cause the ratio to drop.”
Of the joint-stock banks, the capital adequacy ratio of Huaxia Bank fell 1.27 percentage point to 11.55 percent, the tier one capital adequacy ratio of Zheshang Bank dropped 1.16 percentage point and the core tier one capital adequacy ratio of China Merchants Bank slid 0.34 percentage point. These were the biggest falls among this category of lenders.
Many banks have issued convertible bonds, tier two capital bonds and perpetual bonds to replenish their capital this year. Fourteen banks issued nearly CNY160 billion (USD23.1 billion) in perpetual bonds in the first half.
Fewer Bad Loans
The banking sector has made great efforts to dispose of bad loans this year and achieved significant results, an industry insider told Yicai Global, adding that these banks are still under great pressure as the value of their assets is depreciating amid the Covid-19 pandemic, downward adjustments of the real estate market downward and a sluggish capital market.
Thanks to these efforts, the nonperforming loan ratio for 31 banks was lower at the end of June than at the end of last year, while it remained the same for three banks and increased for eight, according to the reports.
Jiangyin Rural Commercial Bank logged the biggest drop in its nonperforming loan ratio, down 0.34 percentage point to 0.98 percent. Bank of Beijing had the biggest increase, gaining 0.2 percentage point to 1.64 percent. Postal Savings Bank of China and China Merchants Bank also reported a gain in bad loans.
Banks were under greater pressure from non-performing loans to the wholesale and retail, leasing and commercial service and real estate sectors. China Construction Bank, for example, had an NPL ratio of 2.98 percent in the real estate field and 2.4 percent in leasing and commercial services at the end of June, all more than half a year ago and higher than the bank's overall bad loan rate of 1.4 percent.
Source: Yicai
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