China’s big banks beat profit estimates

Bloomberg

Resilient economic growth and a government campaign against excessive leverage are helping China’s largest banks, curbing their bad loans and underpinning their net interest margins.
Those factors helped three of the big banks post higher-than-estimated second-quarter net income, led by Bank of China Ltd.’s 23 percent surge, the biggest increase in six years. Largest rival Industrial & Commercial Bank of China Ltd. reported a 2.3 percent gain, while Agricultural Bank of China Ltd. had a 4.8 percent increase, according to figures derived from first-half earnings reported to Hong Kong’s exchange on Wednesday.
China’s economic recovery has bolstered the banks, which, along with China Construction Bank Corp., control about a third of the nation’s $36 trillion of banking assets. What’s more, as interbank lenders, their interest margins have benefited from the government’s campaign against financial leverage, which has driven up the rates that banks pay to borrow from each other.
“Improvement in margin is the highlight for our results in the first half,” Zhang Qingsong, a Bank of China vice president, said at a media briefing in Beijing. “It’s a reflection of better economic conditions as well as our own efforts to improve the mix of assets.”
Here are the banks’ second-quarter net income numbers:
Bank of China: 57.04 billion yuan ($8.7 billion) versus 46.42 billion yuan ICBC: 77.2 billion yuan versus year earlier 75.45 billion AgBank: 52.9 billion yuan versus 50.46 billion yuan Construction Bank earnings are due later on Wednesday evening
The government’s develeraging efforts, renewed in earnest since the start of April, have sought to curb shadow financing and unravel the complex web of ties between Chinese lenders.
Interbank leverage fell in the first half of 2017 for the first time in seven years, while the value of wealth-management products, a key form of off-balance sheet financing, slumped in May by the most in a decade.
Meanwhile, demand for traditional loans increased. Banks advanced a record 8.2 trillion yuan of new lending in the first half, 12 percent more than a year earlier, central bank data show.
Unlike smaller lenders, which often rely on short-term borrowings from other financial institutions, the Big Four together control 40 percent of Chinese deposits, thanks to their extensive branch networks and hundreds of millions of retail customers. That’s enabled them to provide liquidity on the interbank market, where borrowing costs have surged to the highest in two years.
Bank of China’s net interest margin expanded to 1.88 percent in the second quarter from 1.8 percent in the first quarter. ICBC’s NIM was 2.16 percent at the end of the first half from 2.12 percent in March. By contrast, smaller banks such as Bank of Ningbo Co. have reported sharp contractions.
Bets that earnings of the big banks will withstand the develeraging campaign have helped their stock prices outperform smaller rivals since March. Shares of the Big Four last traded at an average of 0.8 times their estimated book value in Hong Kong, compared with a low of about 0.68 times six months ago.
“There’s a flight to safety attitude here,” Andrew Collier, managing director of Orient Capital Research, said in a Bloomberg TV interview in Hong Kong before the earnings release. “Go to the big banks, they’ve got captured deposits from everybody across China, they’ve got less of the shadow-banking junk on their balance sheets and so people have figured that’s the safer bet.”
Growth in China’s economy, which expanded a faster-than-expected 6.9 percent in the second quarter, has bolstered the country’s banks.
Data from the banking regulator this month showed that industry profits rose 7.9 percent in the first half from a year earlier, while the nonperforming-loan ratio at China’s commercial banks has remained unchanged for three straight quarters at 1.74 percent.
Bank of China boosted its
profit in the second quarter by booking significantly lower charges to cover losses from bad loans. Impairment charges in the period amounted to 4.7 billion yuan from about 34 billion yuan a year earlier.

Bank of China gain surges 23%
Bloomberg

Bank of China Ltd., the nation’s fourth-largest lender, posted a 23 percent surge in second-quarter profit after curbing bad loans and expanding its lending margin.
Net income for the three months through June rose to $8.7 billion from 46.42 billion yuan a year earlier, according to quarterly figures derived from first-half earnings Bank of China reported to Hong Kong’s exchange on Wednesday.
That was well above the 48.05 billion yuan average of four analyst estimates compiled byBloomberg.
China’s economic recovery has helped fuel loan growth at the four biggest banks, which together control about a third of the nation’s $36 trillion of banking assets.
As lenders into the interbank market, the Big Four’s interest margins have also benefited from the government’s campaign against financial leverage, which has driven up the rates that banks pay to borrow from each other.

Agricultural Bank profit rises 4.8%
Bloomberg

Agricultural Bank of China Ltd., the nation’s third-largest lender, posted a 4.8 percent increase in second-quarter profit as it curbed bad loans.
Net income for the three months through June rose to 52.9 billion yuan ($8 billion) from 50.46 billion yuan a year earlier, according to quarterly figures derived from first-half earnings Agricultural Bank reported to Hong Kong’s exchange on Wednesday.
That compared with the 51.94 billion yuan average of four analyst estimates compiled by Bloomberg.
China’s economic recovery has helped fuel loan growth at the four biggest banks, which together control about a third of the nation’s $36 trillion of banking assets. As lenders into the interbank market, the Big Four’s interest margins have also benefited from the government’s campaign against financial leverage, which has driven up the rates that banks pay to borrow from each other.