Net Profits and Non-performing Loans Diverge Wildly amongst Chinese Banks

A new report on China’s banking sector points to a highly divergent performance amongst the the country’s lenders in terms of net profit growth  and non-performing loans (NPL)’s). 

The “2018 China Banking Sector Full Sample Report” (2018中国银行业全样本报告) released by the Central University of Finance and Economics in collaboration with China Investment Network found that 247 out of 330 banks monitored posted net profit gains last year, accounting for 75% of the total.

The 330 banks covered by the report included five state-owned banks, 11 joint-stock banks, 1 postal bank, 110 municipal commercial banks, 180 rural commercial banks, 12 foreign-invested banks and 11 private banks.

The performance of China’s big five state-owned banks was especially strong, with Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications seeing net profits attributed to parent company growing by 2.8%, 4.67%, 4.9%, 4.76% and 4.48% respectively, for YoY accelerations of 2.4 percentage points, 3.22 percentage points, 3.04 percentage points, 8.43 percentage points and 3.45 percentage points.

China’s joint-stock banks saw a less impressive performance, with only five out of 11 posting net profit growth in 2017, including China Merchants Bank, China Minsheng Bank, China CITIC Bank, China Everbright Bank, and China Guangfa Bank.

Declines in net profits were concentrated amongst municipal commercial banks and rural commercial banks, with 27 and 45 lenders in these categories seeing profit drops in 2017, accounting for 24.5% and 25% of the total respectively.

Bank of Liuzhou saw net profits decline by 88.91%, while Liangshan Prefecture Commercial Bank (凉山州商业银行), Panzhihua Commercial Bank (攀枝花市商业银行) and Dandong Bank posted drops of 81.29%, 54.77% and 50.48% respectively.

Chinese banks also saw a highly divergent performance in terms of non-performing loans (NPL’s) in 2017, based on the figures publicly disclosed by 300 out of the 330 lenders covered by the report.

103 banks posted NPL’s greater than 2%, accounting for 34% of the total, with most of these banks being rural commercial lenders. The NPL’s of 124 banks saw YoY increases in 2017, accounting for 41% of the total.

10 banks posted NPL’s of over 6% in 2017, while three banks saw NPL’s in excess of 10%, including Guizhou Wudang Rural Commercial Bank (贵州乌当农商行)  (14.96%), Shandong Guangrao Rural Commercial Bank (山东广饶农商行) (13.9%) and Sichuan Emeishan Rural Commercial Bank (四川峨眉山农商行) (11.075).

Guizhou Wudang’s NPL rates increased by 12.94 percentage points, while Shandong Guangrao’s lifted by 11.43 percentage points.

Dong Ximiao (董希淼), a senior researcher from Renmin University’s Chongyang Institute for Financial Studies, told China Investment Network that he is optimistic about the banking sector’s performance in 2019.

“Next year the performance of the banking sector will likely be more steady, and growth could even improve compared to this year,” said Dong.

“The government is expanding the strength of support for the real economy, and the central bank has implemented four targeted cuts to the required reserve ratio this year, expanding credit extension.

“The results of this combination of measures could become apparent next year.”