UPDATE 2 – China’s Top Three Banks Show Stable H1 Profits, NPLs Fall

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* ICBC, BoCom, CCB report significant growth in first half earnings

* Three banks recorded a slight decrease in the share of problem loans

* Net interest margin remains fairly stable (CCB adds, context)

SHANGHAI / BEIJING, August 27. (Reuters) – China’s top three banks on Friday posted more than 9% net profit growth in the first half as non-performing loans shrank, indicating lenders are recovering from the COVID hit last year. …

The results are very different from last year’s results, when the country’s top lenders reported their biggest drop in profits in at least a decade at the end of the first half. In comparison, three banks reported 4-5% growth in net income in the same period of 2019 before the outbreak of the pandemic.

A zero-tolerance approach to COVID-19 means China has managed to maintain a relatively high level of commercial activity, even as repeated lockdowns span other parts of the world.

As a result, China’s largest banks have seen reduced risk of loan defaults and less pressure from regulators urging banks to lower commercial interest rates for businesses, as they did last year at the height of the pandemic.

The Industrial and Commercial Bank of China (ICBC), the world’s largest commercial lender by assets, said its net profit rose 9.87% in the first half of 2021 compared to the same period last year in a statement to the Hong Kong Stock Exchange on Friday …

Following this, China’s Bank of Communications Co Ltd (BoCom), the country’s sixth largest lender in terms of assets, reported a 15.1% increase in net income in the first half.

Also on Friday, China Construction Bank Corp (CCB), the country’s second-largest lender by assets, reported an 11.39% rise in first-half profit.

All three lenders reported small declines in non-performing loans (NPLs), with ICBC reporting that their NPL ratio fell to 1.54% at the end of June from 1.58% at the end of the first quarter.

BoCom reported 1.6% non-performing loans at the end of the first half, up from 1.64% at the end of the prior quarter, while the CCB fell to 1.53% from 1.56% in the same period.

Chinese commercial banks as a whole posted an 11.1% increase in net profit in the first half to 1.1 trillion yuan, according to the China Banking and Insurance Regulatory Commission (CBIRC).

According to the CBIRC, by the end of the second quarter, the average non-performing loan ratio of commercial banks was 1.76%, declining for the third quarter in a row.

BoCom said its NIM – a key indicator of banks’ profitability – increased to 1.55% at the end of June from 1.54% at the end of March, while ICBC dropped slightly to 2.12% from 2.14% in the same period. …

CCB’s NIM remained stable from late March to late June at 2.13%.

UNCERTAIN TIME

Analysts and bankers have warned that the current lack of global stability could affect the health of China’s banks in the second half.

“Out-of-sync pandemic prevention and control in the world, uneven economic recovery, heightened expectations of monetary policy reorientation in the world’s major economies” will all affect the Chinese banking sector, the ICBC said in its annual report.

Analysts also highlighted the impact of domestic regulation on credit. In an August note, Morgan Stanley said lending growth could slow further in the second half due to tightening policies on 80% of China’s lending demand, including demand for real estate-related loans.

“The initial assumption of a robust recovery from COVID may need to be revised in light of the macroeconomic environment,” said Nicholas Zhu, banking analyst and vice president at Moody’s.

Banks “will have to be flexible and adaptable in the second half of the year.”

1 dollar = 6.4791 RMB Reporting by Zhang Yan, Cheng Leng and Engen Tam; Edited by Kirsten Donovan, Kim Coghill and Emilia Sitol-Matariz

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