China's big banks set for hard slog as margins shrink

Tue Aug 30, 2016 9:25am EDT
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By Engen Tham and Shu Zhang

SHANGHAI/BEIJING (Reuters) - Four of China's so-called 'Big Five' state-owned banks have warned that profits will continue to be pressured in the second half of the year, as slowing growth in the world's second-biggest economy hits borrowers and saps lenders' margins.

Chinese banks, among the world's biggest by market value, also face rising volumes of sour debt, forcing a quicker pace of write-offs - even as a series of rate cuts has chipped away at their interest income.

Industrial and Commercial Bank of China (ICBC) (1398.HK: Quote) (601398.SS: Quote), Bank of China (BoC) (3988.HK: Quote) (601988.SS: Quote), Agricultural Bank of China (AgBank) (1288.HK: Quote) (601288.SS: Quote) and Bank of Communications (BoCom) (601328.SS: Quote) (3328.HK: Quote) all warned of tough times ahead.

BoC's chief risk officer Pan Yuehan said the bank faces "relatively big pressure" in the near future, while ICBC's chairman Yi Huiman said bad loans will continue to rise.

ICBC, the biggest bank by assets, and BoC reported near flat half-year profits on Tuesday, and shrinking net interest margins (NIM) - the difference between interest earned on loans and that paid out to depositors.

The lacklustre first-half - a far cry from the banks' strong double-digit profit growth just two years ago - raises the prospect that the government will have to inject more than $100 billion to shore them up, some analysts have said.

ICBC's Yi said the four biggest banks - ICBC, BoC, AgBank and China Construction Bank (CCB) (601939.SS: Quote) (0939.HK: Quote) - and four leading asset management companies would be included in a government debt-to-equity pilot scheme, which aims to let industrial firms convert their debt into equity stakes.


The Industrial and Commercial Bank of China Ltd (ICBC) logo is seen on a building at sunrise Buenos Aires, Argentina, August 10, 2016.  REUTERS/Enrique Marcarian