Profits at Listed Chinese Banks Rise over 7% in 2022 Despite Narrowing Net Interest Margins

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The total profits of some of China’s leading listed banks saw a robust rise in 2022, despite renewed rounds of Covid-related lockdowns and shrinking net interest margins.

As of 9 April, 24 A-share listed banks had disclosed their 2022 annual reports, including all six of the big state-owned banks and multiple leading joint-stock banks, with the remaining 18 listed banks that have not yet disclosed their annual reports scheduled to do so from 25 – 29 April.

In 2022 the net profits of these 24 listed banks totalled 1.87 trillion yuan, for a year-on-year (YoY) increase of 7.1%, as compared to a rise of 12.9% last year for the same cohort of banks.

Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, and China Merchants Bank all had net profits of over 100 billion yuan, while 11 banks, including Industrial Bank, Bank of Communications, and Postal Savings Bank of China, had profits lying within the 10 billion yuan to 100 billion yuan range.

Five banks, including Zhangjiagang Bank, Jiangyin Bank, Ping An Bank, Changshu Bank, and Wuxi Bank all had net profit growth rates of over 20% last year, while Rui Feng Bank, Ningbo Bank, China Merchants Bank, CITIC Bank, Postal Savings Bank of China, Beijing Bank, and Industrial Bank saw growth rates of between 10% and 20%.

22 banks saw their net interest margins narrow last year, accounting for 91% of listed Chinese banks that have published their 2022 annual reports. Only Jiangyin Bank and Bank of China saw net interest margins widen.

“In the fourth quarter of last year, loan interest rates continued to decline, with the core cost of liabilities, especially for corporate liabilities, increasing,” said Wang Yifeng (王一峰), Chief Financial Industry Analyst at China Everbright Securities.

“Most the interest spreads of most banks continued to come under pressure. Larger banks, due to the need to bear more ‘credit stabilisation’ duties and having a higher proportion of core liabilities, saw comparatively greater narrowing of their interest spreads.

“Some small and medium-sized banks have taken measures such as reducing their customers and increasing the share of credit loans to promote stable net interest margins.”

17 of the 24 banks saw a decrease in their non-performing loan (NPL) ratios, accounting for 70.8% of the total, while for five banks the NPL ratio increased and for two the print held steady.

All 24 banks had NPL ratios below 2%, while seven banks including China Merchants Bank had non-performing loan ratios below 1%.

Zeng Gang (曾刚), director of the Shanghai Institution for Finance & Development, said the increase in NPL ratios of some listed banks is due to the increase in NPL ratios of real estate lending for public housing. However, the negative impact of real estate non-performing loans on asset quality is expected to fall significantly this year.

Some banks also pointed to slight rises in the NPL ratios of sector such as social services, technology, culture, health, and construction in 2022, due to the broader macroeconomic downturn.

In terms of capital adequacy ratios, 14 banks saw YoY declines, while 10 banks posted increases. Municipal commercial banks in general had relatively low capital adequacy ratios and saw larger declines.

Domestic observers say in 2023 municipal commercial banks could have relatively limited channels for capital replenishment and weak internal capital generation capabilities, putting greater pressure on their capital adequacy ratios compared to the big state-owned and joint-stock banks.