Bank of China, ICBC see profit growth drop sharply as slowing economy, property crisis take a toll

Two of China's biggest banks, Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC), posted sharply lower profit growth in their interim financial results as they struggled with a slowing economy and persistent crises in the property sector.

ICBC, the world's largest bank with total assets of 43.67 trillion yuan (US$5.99 trillion), reported a 1.2 per cent year-on-year gain in net profit to 173.74 billion yuan in the six months ending June 30. The lender missed expectations of a 6.8 per cent increase to 183.2 billion yuan by analysts polled by Bloomberg.

Meanwhile, Bank of China (BOC), the world's fourth-largest bank with assets of 31.09 trillion yuan, posted a net profit of 120.1 billion yuan, an increase of 0.78 per cent compared with the same period of the prior year, missing analyst estimates of a 2.9 per cent growth to 123.5 billion yuan as polled by Bloomberg.

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ICBC's non-performing loan (NPL) ratio, a gauge of potential bank losses, fell to 1.36 per cent from 1.38 per cent at the start of this year. Meanwhile, BOC's NPL dropped to 1.28 per cent at end-June from 1.32 per cent in December.

The results came amid an escalating property crisis that has dampened creditor confidence and threatens the health of financial institutions.

Country Garden, one of China's biggest builders, extended a creditor voting deadline last Friday to delay the repayment for 3.9 billion yuan worth of onshore private bonds. Meanwhile, China Evergrande, the world's most indebted developer, saw its Hong Kong shares tumble 79 per cent as it resumed trading on Monday, after a 17-month hiatus.

Real estate-related NPLs, an indicator of a bank's exposure to property risks, rose to 51.22 billion yuan for ICBC, compared with 44.53 billion yuan last December. The value of the lender's non-performing residential mortgages rose to 26.74 billion yuan from 25.39 billion yuan earlier this year.

BOC posted 43.2 billion yuan worth of real estate-related NPLs, compared to 56 billion yuan in December. Its residential mortgages edged down to 6.37 trillion yuan from 6.43 trillion yuan in December. Its bad residential mortgage was not separately tallied.

Major state-owned banks are faced with mounting pressure to protect their net interest margins (NIM), a key gauge of profitability, as they respond to Beijing's call to provide affordable mortgages and inject liquidity into China's debt-ridden property market.

ICBC's NIM fell by 31 basis points to 1.72 per cent, while BOC reported a 9 basis point decrease to 1.67 per cent. Chinese commercial banks' NIM has dropped to a record low of 1.74 per cent as of June this year.

Despite signals from Beijing to protect bank profit and prevent the property crisis from spilling over into the broader financial economy, lenders are faced with imminent downward pressure on their margins.

Several Chinese banks have made pledges this week to cut mortgage rates, answering Beijing's call to make homes more affordable and help arrest a multi-month slump in the nation's housing market.

"We will provide reasonable and moderate financing to property developers ... while supporting [rules around] residential mortgages, under the condition that our actions are compliant, and that the risks are controllable," said Liu Jiandong, BOC's chief risk officer.

"In the future, we will make sure to implement the PBOC and relevant ministries' requirements on easing existing and new mortgage loans in order to serve our individual clients."

ICBC shares dropped 0.6 per cent to close at HK$3.57 on Wednesday, while BOC shares fell 0.4 per cent to HK$2.70. The broader Hang Seng Index was almost unchanged.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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