China's "Big Four" state-owned banks reported their largest profit falls in a decade in the first half of the year. They also reported big increases in bad loans as a result of the business-killing effects of the worldwide COVID-19 pandemic and demands to support the flagging China economy.
These banks, among the world's largest, are the Industrial and Commercial Bank of China Ltd. (ICBC), China Construction Bank Corp. (CCB), Agricultural Bank of China (AgBank) and Bank of China (BoC).
Their first-half and second-quarter reports were a turnaround from their first-quarter results that saw profits rise and bad debts, or nonperforming loans (NPLs), remain steady year over year.
Positive net interest margins fell at three of the four banks. Net interest margin compares net interest income from loans and mortgages with the interest a bank pays holders of savings accounts and certificates of deposit and is considered an important measure of a bank's profitability.
ICBC, the world's largest bank by total assets, saw its net interest margin fall to 1.98 percent in the second quarter from 2.2 percent in the first. AgBank's net interest margin fell to 2.14 percent from 2.17 percent. However, BoC's net interest margin rose to 1.82 percent from 1.8 percent.
NPL ratios increased at all of the Big Four. ICBC saw its NPL ratio rise to 1.5 percent in the second quarter from 1.4 percent in the first. CCB's second-quarter NPL ratio rose 0.07 percentage points to 1.49 percent.
For China's banking sector second-quarter NPLs were 1.94 percent - the highest since 2009. This had a downward effect on bank profitability. Overall, China's commercial banks reported a 9.4 percent year-over-year drop in first-half net profit to $146 billion (1 trillion yuan), the China Banking and Insurance Regulatory Commission, the banking regulator, said. As a consequence, they have set aside larger provisions against bad debts in the coming months.
"The banks have been asked to...perform 'national service,' " said Jason Tan, research analyst at CreditSights. "They've been asked to support the economy at the expense of their own operational strength."
Sources in China's financial industry said the central government required this sacrifice from financial institutions. The net effect will see commercial banks lose $219 billion in profits this year as they assist struggling companies by lowering lending rates and deferring repayments on loans.
The Big Four are listed among the top 50 in the "2019 Fortune Global 500" list of the world's largest publicly listed companies ranked by revenue. ICBC is ranked 24th, CCB, 30th, AgBank, 35th and BoC, 43rd.
