Big State-owned Banks Post Steady Profit Growth on Thicker Margins

China’s big state-owned banks saw steady growth in profits last quarter, as Beijing’s ongoing deleveraging campaign led to tighter liquidity conditions.

Four out of the the big five Chinese banks posted profit growth of over 5% in the second quarter, roughly in line with the expectations of analysts

Agricultural Bank of China saw a 7.9% increase in profits to reach 57.1 billion yuan,while China Construction Bank logged a 7.2% profit rise to hit 73.2 billion yuan.

Bank of China profits posted a 5.3% increase to hit 60 billion yuan, and Bank of Communications saw a 5.2% increase to reach 20.7 billion.

“We think broad-based results are improving with strong pre-provision operating profit growth on the back of faster loan origination and net interest margin expansion,” said Goldman Sachs analysts in a note published on Wednesday.

Beijing has since dialled back its heavy-handed deleveraging campaign and loosened up liquidity, however, as Sino-US trade tensions cast doubts upon economic growth, and the Chinese banking sector sees a record surge in non-performing loans (NPL) following the launch of stricter recognition standards.

The Chinese banking regulator recently called for commercial lenders to extend more credit, while the central bank has dialled back capital requirements for certain institutions in order to boost lending.

Observers have expressed concern that these expansionary credit policies will once again delay much needed measures to tackle the issue of systemic risk in the Chinese financial system.

“People don’t like this policy giving new liquidity and delaying the deleveraging process,” said Alex Wong, director of asset management at Ample Capital Ltd., to Bloomberg.

“We have seen this in China over the past 10 years…time to time they loosen and then they tighten again, so I think people are a little bit sick of it.”

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