Higher loans buoy profits of Chinese state banks in Q4

ICBC, CCB, and ABC achieved the strongest expansion in net interest income.

As most Chinese banks smashed profit expectations after registering high earnings growth in Q4, the big SOE banks continued to outperform the rest of the pack after posting the most significant expansion in net interest margin, according to UOB Kay Hian.

ABC, CCB and, ICBC were able to achieve the strongest increase in net interest income at 17.7%, 16.8%, and 14.5% respectively.

Also read: China's big banks turn to short-term financing to offset deposit woes

“NIM expansion was most significant at large SOE banks. NIM for ICBC, CCB, and ABC expanded by about 18bp, 16bp and 6bp qoq respectively in 4Q17. Their loan yield improved by 16-18bp hoh in 2H17,” the report noted.

Here’s more from UOB Kay Hian: 

PPOP grew at a double-digit pace of 12.8%, 15.4% and 16.9% yoy respectively for ICBC, CCB and ABC. ICBC and CCB were conservative to increase provisions by 59% and 37% yoy despite stabilisation in asset quality. CMB was prudent with credit costs at a hefty 179bp, which improved loan loss coverage by 27ppt to 262%.

We were impressed by the broad-based improvement in asset quality shown by ABC and CMB. The two banks registered respective improvements in NPL ratio of 16bp and 5bp qoq to 1.81% and 1.61%. They also saw simultaneous declines in balance for NPL, SML and overdue loans. BOC was the exception with NPL ratio deteriorating by 4bp qoq to 1.45% while NPL balance increased 3.7% qoq. 

We view the continued emphasis on preventing financial risks and deleveraging positively as it reduces systemic risks. This has to be a multi-year effort to ensure that disorder in the financial system is truly eradicated. Thus, we expect regulations to be tightened and SHIBOR to remain elevated.