Industrial and Commercial Bank of China (ICBC), the leader among China's Big Four state-owned banks and the world's largest commercial bank, posted its fastest profit growth since September 2014 during the first half of this year. It also reported improved margins and asset quality while maintaining a stable bad loan ratio.
ICBC reported a profit of $23.5 billion compared to $22.4 billion year-on-year, an improvement of 4.9 percent. Net profit for the second quarter alone amounted to $11.9 billion, up 5.7 percent from $11.3 billion year-on-year. Analysts had earlier predicted a 5.2 percent increase in quarterly net profit.
ICBC's net interest margin (NIM) stood at 2.30 percent at the end of June, which remained steady versus end-March levels. A key indicator of profitability, NIM is defined as the difference between interest paid and earned. ICBC's non-performing loan (NPL) ratio for Q2 held steady at 1.54 percent.
ICBC and the three other big state-owned banks are benefiting immensely from the government's crackdown on the mammoth and unregulated shadow banking industry. This tightening of the screws, however, is depriving small and medium enterprises of the major source of their funding. Small business often complains the Big Four won't lend to them, which is painfully true.
More strident calls for banks to lend more to the real economy and small businesses coupled with a drop in interbank interest rates might mean lending could marginally accelerate during the remainder of the year.
But the shadow banking crackdown coupled with the economic slowdown and Trump's trade war against China will still see a wider slump in manufacturing. These factors have convinced analysts to reduce profit forecasts for the Big Four for the rest of this year.
The trade war with the United States is especially worrisome for ICBC. ICBC Chairman Yi Huiman said, "trade friction" is bringing uncertainty to China's economy and to the global economy, as well. As a precaution against future risks, ICBC said it will conduct stress tests on clients hit by the trade war. ICBC also said will provide financing to ease temporary difficulties caused by mounting trade tensions
Despite this severe headwind, margins are expected to improve for most of China's banks, including the Big Four, during the second half. This, because Beijing will continue infusing funds into the banking system and rolling-out support measures to enable businesses to survive the more damaging future impacts of the trade war.
ICBC said it planned to raise up to $14.6 billion in preferred shares to boost its Tier 1 capital adequacy ratio and improve its capital structure.
