China’s big banks stage a profit comeback as bad loans recede

Bloomberg

Two of China’s largest banks posted better-than-expected profit growth in 2017 as a strengthening economy curbed soured loans and the government’s campaign to cut debt boosted their lending margins.
Industrial & Commercial Bank of China Ltd on Tuesday reported a 3 percent increase in net income last year, while Agricultural Bank of China Ltd posted a 5 percent gain. Both lenders beat analysts’ estimates.
ICBC net income rose to 286 billion yuan ($45.6 billion) in 2017 from 278.3 billion yuan a year earlier, the world’s largest lender by assets said in a stock exchange filing on Tuesday. That was an improvement on the 281.7 billion yuan average of 14 analyst estimates compiled by Bloomberg. ICBC Chairman Yi Huiman said at a press conference in Hong Kong that he’s content with last year’s better-than-expected results and expects asset quality to remain stable in the future.
China’s top five banks, which control more than a third of the nation’s $40 trillion in banking assets, are staging a comeback thanks to improvements in borrowers’ repayment ability and higher demand for loans. They are also benefiting from President Xi Jinping’s crackdown on excessive debt, which is forcing smaller banks to turn to big lenders to borrow money.
ICBC’s net interest margin widened by 6 basis points while the spread expanded by 3 basis points at AgBank. Both banks’ nonperforming loan ratios dropped for the first time since at least 2013, and senior executives said at press conferences that they expect the benign asset quality trend to continue.
Together with China Construction Bank Corp., Bank of China Ltd. and Bank of Communications Co., combined profits at the Big Five probably grew about 3 percent last year, the fastest expansion since 2014, according to analysts’ estimates. That’s projected to pick up to about 8 percent in 2018 as rising global interest rates boost margins.
Their results are partly flattered by a poor 2015 and 2016, when concerns intensified about rising bad loans across China’s financial sector. Asset quality has since improved as economic growth accelerated in 2017 for the first time in seven years. Another sign of optimism emerged this month, when the regulator was said to have lowered bad-loan provisions to a minimum 120 percent from the previous 150 percent, freeing up more cash for lending.
Shares of ICBC have climbed 8 percent this year while AgBank surged more than 24 percent, outperforming the 3 percent gain in the benchmark Hang Seng Index. Still, Hong Kong-listed Chinese banks are trading at an average 0.75 times their forecast book value.
ICBC’s bad-loan coverage ratio, which measures provisions against soured credit, climbed to 154 percent by December. At AgBank, the buffer surged to 208 percent.

YUAN JUMPS
China’s currency touched its highest level in almost three years amid signs that a trade war may be averted, before erasing gains as the greenback rebounded.
The yuan surged as much as 0.6 percent to 6.2418 per dollar on Tuesday to its strongest level since a devaluation in August 2015. The currency closed down 0.1 percent, while the offshore rate dropped 0.35 percent at 6:35 p.m. in Hong Kong.
Gains in the currency came as the Trump administration was said to be urging China to lower tariffs on cars and open its market to US financial services as part of talks to resolve a rise in trade tensions. Adding to the bull case was the announcement that China’s yuan-denominated bonds will be included in the Bloomberg Barclays Global Aggregate Index, which could prompt inflows of around $110 billion, according to Goldman Sachs Group Inc.
“Market sentiment has become more optimistic versus last week amid signs that both sides are willing to talk,” said Gao Qi, Singapore-based strategist at Scotiabank
The currency is also gaining as the People’ Bank of China hasn’t signaled it will slow appreciation at any particular level, which may mean the yuan will test 6.2 per dollar soon, said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. The yuan is heading for a fifth straight quarter of gains, its best winning streak in four years.

PBOC signals Yi to run China’s monetary policy
Bloomberg

A week after Yi Gang was appointed governor of China’s central bank, the institution is seeking to reassure investors that he’s the guy at the helm.
In Beijing, the People’s Bank of China updated the leadership section of its website to show that Guo Shuqing, the chairman of the PBOC’s banking regulation counterpart, would also serve as the Communist Party secretary at the central bank. Minutes later came a separate statement signaling Yi would be the one running monetary policy.
Guo, who’s officially chairman and party chief at China Banking and Insurance Regulatory Commission, will be a deputy PBOC governor to Yi, while Yi will be the deputy party chief to Guo. The account lists Yi’s comments first and cites him as telling his fellow cadres that he’ll manage “all aspects of work at the
central bank” well.