Bad loans bite, net interest margins narrow in Q1
The nation's five biggest banks are expected to report sluggish first-quarter profit growth, continuing a trend of the past eight quarters, as a slowing economy and mounting bad loans squeeze margins.
The outlook for profits is unlikely to improve soon, with the banking regulator and analysts warning of pressure on asset quality and net interest margins, due to interest rate cuts and interest rate reform.
The world's biggest lender, Industrial and Commercial Bank of China, is expected to report a 0.18 percent rise in profit on Thursday, according to brokerage estimates compiled by Thomson Reuters.
Other large banks, including Agricultural Bank of China and Bank of Communications, are expected to post similar results.
Bank of China will be the first of the Big Five banks, with earnings scheduled for release on Tuesday.
Profit growth for the big lenders may range from 1 percent to 6 percent mainly as a result of a pick-up in credit demand after recent interest rate cuts, Edmond Law, banking analyst at UOB Kay Hian (Hong Kong), said.
"The concerns are still on asset quality and net interest margins," said Law, who has forecast continued asset quality deterioration in the second half.
Chen Yulu, vice governor of the People's Bank of China (PBOC), the central bank, said on Sunday that financial institutions face increasing credit risks, and that factors that influence financial market stability are on the rise.
Troubled and delinquent loans stood at 4.16 trillion yuan ($642 billion) at the end of 2015, of which one-quarter were nonperforming loans (NPLs), according to the China Banking Regulatory Commission.
"Bottom line contraction is likely if nonperforming loans continue to grow and provision coverage isn't relaxed," said Patricia Cheng, bank analyst at brokerage CLSA in Hong Kong.
Chinese banks are required to set aside funds equivalent to at least 150 percent of bad loans to cover losses.
To address the strain on banks' capital reserves, policymakers have introducing new measures including debt-for-equity swaps and the securitization of NPLs.
Separately, the PBOC said on Monday that small-loan providers extended less credit in the first quarter. There were 8,867 small-loan firms as of the end of March and their lending volume dropped 2.3 billion yuan from 941.1 billion yuan as of the end of 2015, according to the website of the PBOC.
