The Asia Global Payment Summit. Bali, Indonesia. 10-11 October 2019

Profit Recovery Boosts Chinese Bank Valuations

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Analysts have raised their price targets for China’s biggest banks after they posted profit growth ahead of forecasts.

The South China Morning Post reports that analysts estimate the growth rate of the combined profits of China’s big five banks saw an increase of 3% last year, for their most rapid rate of growth since 2014.

Analysts are even more sanguine about the profit growth of China’s biggest banks in 2018, foreseeing an increase to 8% as margins widen on the back of a global rise in interest rates.

Net interest margins at ICBC and the Agricultural Bank of China have expanded by 6 basis points and 3 basis points respectively, while both lenders reported a decline in non-performing loan ratios for the first time in at least five years.

Analysts have raised their valuations of Chinese banks in the wake of this improved performance, with Nomura analysts adjusting the price target for ICBC to HK$10.42 from HK$8.86.

“We definitely believe more re-rating will be in front of us,” said Victor Wang, Hong Kong-based analyst at China International Capital to Bloomberg Television. 

“Most of the time, banking is not a bad business when macro stabilises. The numbers will be getting better going forward.”

Wang sees an upside gain of 89% for ICBC shares and 79% for China Construction Bank.

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