China bank profits flat-line as bad debts continue to soar

Tue Mar 29, 2016 4:27am EDT
 
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By Shu Zhang and Matthew Miller

BEIJING (Reuters) - China's Big Four state-run banks this week are set to report annual earnings growth that likely flat-lined after around a decade of terrific profitability, as a surge in soured loans continued unabated while economic expansion weakened.

Profit growth has slowed in recent years while the sector tackles its greatest challenge since the global financial crisis, with bad loans at a 10 year high while funds set aside to cover the losses fall close to regulatory limits.

While banks ramped up lending during a government stimulus drive during the meltdown, much of that lending went to industries where rapid expansion developed into over-supply as economic growth tapered, raising the risk of default and dragging on profits.

For 2015, analysts estimate net profit at the Big Four to range from 1 percent growth to 1 percent decline, showed Reuters calculations based on data from Starmine SmartEstimate.

Bank of Communications Co Ltd 601328.SS 3328.HK, China's fifth-biggest lender, reports earnings on Tuesday, followed on Wednesday by Industrial and Commercial Bank of China Ltd (ICBC) 601398.SS 1398.HK and Bank of China Ltd (BOC) 601988.SS 3988.HK.

China Construction Bank Corp 601939.SS 0939.HK is also expected to report earnings on Wednesday, followed by Agricultural Bank of China Ltd 601288.SS 1288.HK on Thursday.

Fitch Ratings, in a research note on March 22, said banks are likely to announce "continued subdued earnings growth amid margin compression and asset deterioration."

Six cuts in the central bank's benchmark interest rate over 17 months has narrowed lenders' net interest margins - or the difference between interest earned on loans and funds extended. Analysts expect slow economic growth and reforms to prompt more cuts.   Continued...

 
An employee speaks on the phone in the headquarters of Industrial and Commercial Bank of China Ltd (ICBC) in Beijing, October 15, 2013. REUTERS/Jason Lee/Files