NIM disparity hits Chinese banks' H1 results

China’s four biggest state-owned banks reaped higher net profits as their net interest margins grew while mid-sized and smaller banks suffered from shrinking margins.

China’s four biggest state-owned banks reaped higher net profits as their net interest margins grew while mid-sized and smaller banks suffered from shrinking margins.

This disparity of net interest margins has resulted in a mixed performance by the country’s banking sector in the first half of the year. 

Net profits for the “big four” banks were better-than-expected as they enjoyed improved NIM. Overall, their combined net profit amounted to 503.6 billion yuan (US$76.8 billion) in the first six months, trumping analysts’ expectations.

NIM — a key metric of banks’ profitability — measures the difference between interest paid and interest received, adjusted relative to the amount of interest-generating assets.

The average NIM of the whole banking industry stood at 2.05 percent in the first half, up 2 basis points from the first quarter, according to data released last month by the China Banking Regulatory Commission. The big four lenders enjoyed a 3-basis-point quarterly growth in NIM as of the end of June, albeit a year-on-year fall of 10 basis points. 

The Agricultural Bank of China posted the highest NIM of 2.24 percent among the big four, up 4 basis points over the first quarter. The rise in NIM contributed to a 3.3 percent gain in net profit to 108.59 billion yuan. 

The Industrial and Commercial Bank of China, the country’s biggest bank, reaped net profit of 153.7 billion yuan in the fist half, up 2 percent year on year. Its NIM for the six months ended 30 June was flat at 2.16 percent from last year but it rose four basis points quarter on quarter. Gu Shu, the bank’s president, noted that the stable NIM drove ICBC’s performance.

With a net profit of 138.3 billion yuan, China Construction Bank saw a 4 basis point quarter-on-quarter increase of its NIM by the end of June due to its optimized structure of assets and liabilities. 

The Bank of China saw an improved NIM quarter by quarter, with a 3 and 8 basis point quarterly rise in the first and second three months of the year respectively. With assets of 19.4 trillion yuan, one basis point growth of NIM will translate into an income of 2 billion yuan, said Zhang Qingsong, BOC’s executive vice president. 

China’s resilient economic performance and the government’s financial de-leveraging campaign have helped the largest banks curb bad loans and shore up NIM, a recent report from Bloomberg News said. The clampdown on leverage lifted interbank lending rates which helped big banks benefit greatly by lending money.

In contrast, medium-sized banks suffered a sharp fall of their NIM from January to June.

China Minsheng Bank’s NIM narrowed by 61 basis points year on year — the largest drop among the eight A-share listed joint-stock commercial lenders. The bank saw a 13-percent drop in its net interest income. The bank’s slowing net profit was mainly caused by the shrinking NIM and the change of business tax to value-added tax, its half-year statement said. 

The NIM of both Pingan Bank and Huaxia Bank fell 38 basis points year on year, resulting in a slower growth of their net profits. Huaxia bank’s NIM, meanwhile, shrank the most quarter on quarter by 20 basis points. 

Citic Bank posted a 28 basis point drop in NIM in the same half of last year and a 2 basis point fall last quarter, resulting in its net interest income shedding 7.38 percent and revenue decreasing 2.08 percent. 

China Merchants Bank, the country’s fifth largest by assets, said its NIM stood at 2.43 percent by the end of June, flat with that of last year. Its NIM for the second quarter stood at 2.44, up one basis point from the first quarter. 

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