Banks earn more profits thanks to better asset quality

China’s banking sector as a whole performs better than expected in the first six months, with a steady growth of net profit and improved asset quality.

Most of China’s listed banks managed to earn more profits albeit lower revenues in the first half of this year, boosted by improved asset quality, according to their interim reports.

Twenty-five A-share listed banks posted a combined net profit of 774.6 billion yuan (US$117 billion) in the first half, up 4.92 percent annually.

The “big five” banks, or the five biggest state-owned banks, earned 542.6 billion yuan in total, which translates into a daily earning of almost 3 billion yuan. Their profits contributed to three-quarters of the total.

Industrial and Commercial Bank of China Limited, with a153.7 billion yuan net profit, was the country’s most profitable lender, followed by China Construction Bank Corporation(138.3 billion yuan) and Agriculture Bank of China(108.6 billion yuan).

The overall net profit came to 190.4billion yuan for the eight joint-stock banks listed on the A-share market, with more than 1 billion yuan earning per day. China Merchants Bank took a leading position by making a net profit of 39.2 billion yuan, even outpacing that of Bank of Communications, the fifth largest bank in terms of assets.

Three large commercial banks (assets size above 2trillion yuan) kept two-digit growth rate of net profit, with Bank of China rising by 11.45 percent, China Merchants Bank 11.43 percent, and Postal Savings Bank of China 14.51 percent, according to data compiled by Wind, a financial service provider.

Bank of Guiyang saw a 23.26 percent growth of net profit, the fastest among the seven listed city commercial banks. Those lenders made a net profit of 39.3 billion yuan altogether, almost equivalent to that of the most profitable joint-stock bank. Bank of Beijing made a net profit of 11 billion yuan amid the slowest growth rate.

The growth of net profit was mainly driven by the improvement of asset quality, according to industry insiders and observers. A majority of the listed banks recorded a fall of the non-performing loan(NPL) ratios, with two flat with that of the same period of last year.

The average NPL ratio of the “big five” stood at 1.58 percent, down by 11 basis points from that of the end of 2016. Agriculture Bank of China (AgBank) saw the biggest drop among them by 19 basis points to 2.19 percentage points, still higher than the sector’s average level of 1.74 percent.

“The decline of the outstanding balance of bad loans and the NPL ratio will help the recovery of profits”, said Zhao Huan, president of AgBank. He added that risk control was a big contributor to the bank’s profit increase.

Li Zhicheng, chief risk officer of the bank, noted that both the outstanding balance and ratio of the new bad loans, overdue loans and the special-mentioned loans went down in the first half.

Industry analysts said they remain positive about the banking sector on the recovery of the macro economy and the improved operating environment of the enterprises.


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