China's top banks see strong loan growth and stable asset performance in H1

China's six largest commercial banks reported stable performances in the first half of 2019, with loan growth picking up and asset performance improving, Moody’s Investors Service said on Tuesday.

From January to June, loans of the six state-owned lenders jumped 10.1 percent compared with a year earlier. This acceleration was mainly driven by corporate loans as banks have stepped up lending to infrastructure projects and private small and medium-sized enterprises (SMEs) to support the real economy, the rating agency said.

Postal Savings Bank of China continued to grow its loans much faster than the other five banks, as it focused on rebalancing its assets toward higher lending penetration.

Growth of loans to individuals continued to outpace that of corporate loans but the differential narrowed to below 3 percentage points in the first half. In particular, China Construction Bank and Bank of Communications reported corporate loan growth above individual loans in the first six months.

Moody’s expects loan growth to stay at low-teens percentage levels, and above asset growth, as these banks need to fulfill their policy role to support economic growth.

Meanwhile, the big players saw their asset quality improve and loan loss reserves rise. Due to Chinese authorities' accommodative financial policy, banks’ key delinquency metrics improved, including non-performing loan, special mention loan and 90+ days overdue loan ratios.

However, the six lenders remained cautious in loan provisioning because of rising economic uncertainty and credit costs remain high as a result, Moody’s added.

Profitability of these lenders’ remained stable between narrower interest margins and higher fee incomes. The six banks’ return on assets dropped 2 basis points to 1.11 percent from a year ago, but stronger performances from wealth management and card businesses have supported fee income growth and revenue expansion.

Moody’s expects the banks to face further margin and profitability pressure in the second half of 2019.

Moreover, the top six lenders’ funding structure improved further. Their loan/deposit ratios were stable at 73.8 percent in the first half, but liquid assets dropped as they accelerated loan growth.

Banks' reliance on market funds declined and the mix of such funds also shifted to bonds and negotiable certificates of deposits from interbank/repurchase agreement and other shorter-term instruments.