China's Big Five banks revealed annual net profit growth exceeding 3.5% this week, while cautioning that the nation's economic recovery remains on shaky ground. Bank of Communications Co Ltd (BoCom) and Bank of China (BoC) both reported over 5% annual net profit growth. Meanwhile, Agricultural Bank of China Ltd (AgBank) and China Construction Bank Corp posted over 7% growth, and Industrial and Commercial Bank of China (ICBC) saw 3.5% growth.
According to Ming Tan, a director at S&P Global Ratings, the Big Five banks' loan portfolios are "well diversified and adequately provisioned." Despite the positive results, all five lenders highlighted concerns about global banking instability and domestic risks.
AgBank's stock exchange filing stated, "The domestic economy saw stable recovery, but the foundation for recovery was not yet solid." BoCom's chief risk officer, Lin Hua, pointed to challenges in the property market, noting, "The liquidity stress of the property industry will still take time to recover," and warning of continued disruption affecting mortgage asset quality.
In 2022, China's property sector was hit by consecutive developer bond and loan defaults as earlier policy measures to curb leverage resulted in cash shortages throughout the industry. Ming highlighted "net interest margin pressure and pockets of risks in the property sector and some weak state-owned-enterprises" as the main challenges facing the banks.
Although the Big Five banks have distanced themselves from troubled institutions like Silicon Valley Bank and Credit Suisse, they acknowledged that volatility in Western markets could pose risks. In its Thursday filing, BoC said, "In 2023, the global economic situation is facing even more complexity and uncertainty, with major economies under increased risk of recession and emerging markets exposed to heightened volatility in currency, capital flow, and financial markets."
While all five lenders reported stable or decreasing non-performing loan ratios, they also experienced shrinking net interest margins (NIM), an essential indicator of bank profitability.
Redmond Wong, Greater China market strategist at Saxo Markets, emphasized that the most significant challenge for China's banks this year is pressure from central and local governments to support the economy by "lending to projects that may not be providing a reasonable return on capital" or any return at all. Cheng Yuanguo, chief risk officer at CCB, added that the bank "has fast-tracked policy-supported real estate projects."
