The first two Chinese banking giants to report earnings this week have two things in common: zero profit growth and bad loans piling up at more than twice the pace of a year earlier.
Industrial & Commercial Bank of China Ltd. posted a 31 percent increase in bad loans in the first half, while Agricultural Bank of China Ltd. had a 28 percent jump, their stock-exchange statements showed on Thursday.
At a press briefing in Beijing, ICBC President Yi Huiman indicated that the lender may have to abandon a target of keeping its nonperforming loan ratio at 1.45 percent this year, citing “severe” conditions. The level at the end of June was 1.4 percent.
The economic weakness and $5 trillion stock-market slump that prompted the central bank to cut interest rates and lenders’ reserve requirements this week may make it harder for China’s banks to revive earnings growth and attract investors. For now, the biggest banks are trading below book value.
“We are nowhere near the end of this down cycle, not with the economy wobbling like now,” said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co.
On Friday, ICBC’s shares rose 0.4 percent in Hong Kong as of 10:17 a.m., lagging behind a 1.2 percent gain in the benchmark Hang Seng Index, while Agricultural Bank shares were unchanged.
ICBC’s profit was little changed at 74.7 billion yuan ($11.7 billion) in the quarter ended June 30, based on an exchange filing, almost matching 74.8 billion yuan a year earlier. That compared with the 75.7 billion yuan median estimate of 10 analysts surveyed by Bloomberg.
Nonperforming loans jumped to 163.5 billion yuan, the company said.
Agricultural Bank reported a profit decline of 0.8 percent to 50.2 billion yuan and bad loans of 159.5 billion yuan, including debt in the construction and mining industries.
For ICBC, the biggest increases in nonperforming credit in the first half were in China’s western region, where coal businesses are struggling, the Yangtze River Delta and the Bohai Rim.
ICBC, Agricultural Bank and another of China’s large lenders to report on Thursday, Bank of Communications Co., all reported declines in net interest margins, a measure of lending profitability. The rural lender had the biggest fall, a slide of 15 basis points from a year earlier to 2.78 percent.
— With assistance by Jun Luo, and Aipeng Soo