China's 'big four' banks continue stable performance in H1

Tracy Li
Steady results achieved despite rising risks from weaker economy and exposure to property developers, Moody's said.
Tracy Li
China's 'big four' banks continue stable performance in H1

China's "Big Four" state-owned commercial banks continued stable performances for the first half of 2022, despite rising risks from a weaker economy and exposure to property developers.

The banks are Industrial and Commercial Bank of China Ltd, China Construction Bank Corporation, Bank of China Ltd and Agricultural Bank of China Ltd.

The four lenders' funding relies on deposits, which accounted for an average of 79.7 percent of total liabilities, data showed.

In terms of loans, these established players saw their corporate loans grow 11.3 percent to 11.7 percent in the first half as they responded to authorities' calls for support to corporate borrowers.

Also, their retail loans grew 2.5 percent to 5.2 percent as consumers reduced their household leverage in the face of the lingering pandemic.

Moody's Investors Service said in a recent report that it expects the top four banks' net interest margins to trend lower for the rest of 2022 because of lower asset yields following the lower loan prime rates and continuing competition for deposits.

Net interest margin, a key measure of a lender's profitability, is the difference between the interest income generated and the amount of interest paid out to lenders.

The four banks' profitability is projected to stabilize just below 1 percent over the next 12-18 months, according to Chen Huang and Nicholas Zhu at Moody's.

The banks' nonperforming loan ratios for corporate loans to the real estate sector increased by between 58 to 113 basis points in the first half of 2022 as property developer distress continued.

However, the impact of this distress has not significantly carried over to overall asset quality because less than 5 percent of the banks' total loans are corporate loans to the real estate sector, the report noted.

Despite lower expected growth in the economy, Moody's credit experts do not expect the asset quality of mortgages to deteriorate significantly because of the four banks' diversified portfolios across cities and low loan-to-value ratios.

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