Industrial & Commercial Bank of China Ltd. reported a 21 billion yuan ($3.4 billion) jump in soured credit in the first quarter, the biggest increase since at least 2008, in a filing on Wednesday.
ICBC, China Construction Bank Corp., Agricultural Bank of China Ltd, Bank of China Ltd. and Bank of Communications Co. all this week reported profit growth of less than 2 percent, down from an average of about 10 percent for the same period in 2014.
“We are off to a weak start and earnings growth may get even worse in the second half,” said Chen Shujin, a Hong Kong-based analyst at DBS Vickers Hong Kong. The start of a deposit insurance system in May will add to banks’ costs, she said.
China’s economy is forecast to expand this year at the slowest pace since 1990 and lenders face intensifying competition for funds as the government deregulates the finance industry. The combined profit growth of the top five banks may slow to 4.6 percent in 2015, the weakest in at least 12 years, according to consensus analysts’ estimates.
Banking shares have jumped amid a Chinese stock boom, helping ICBC to overtake Wells Fargo & Co. as the world’s most-valuable lender. At the same time, Chinese banks remain the cheapest in the world, trading at about 7.7 times estimated earnings for 2015, the lowest for lenders with a market value of more than $10 billion, data compiled by Bloomberg show.
Property Slump
A property slump and government efforts to rein in shadow banking are making it harder for Premier Li Keqiang to sustain the pace of economic growth. China has relaxed home-purchase controls and pumped at least 1.5 trillion yuan of liquidity to lenders through reserve-ratio cuts as the government seeks to limit the slowdown.
“The trend remains that banks’ profit growth will continue to slow while asset quality will continue to worsen,” said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities HK Ltd. “A possible bright spot for the banking industry” will be efforts to increase private ownership of lenders, Cao said.
Nonperforming loans at ICBC, Construction Bank, Bank of China and Bank of Communications increased by the most in at least seven years in the first quarter.
ICBC and Agricultural Bank both set aside about 50 percent more provisions against potential bad loans in the quarter than a year earlier, while Construction Bank boosted those charges by 81 percent. At Bank of China, provisions fell by 9 percent while Bank of Communications reported little change.
While bad loans are climbing, they still account for less than 2 percent of banks’ total advances, compared with almost 20 percent in 2004.
Standard & Poor’s warned on April 15 that 2015 could be a tougher year for banks as more loans to mid-sized and large manufacturers go bad. In a sign of stresses, Baoding Tianwei Group Co. was the first state-owned company in China to default on an onshore bond, failing to pay 85.5 million yuan of interest.
Source: http://www.bloomberg.com/news/articles/2015-04-29/china-banks-worst-year-since-2004-seen-as-icbc-s-bad-loans-jump
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