(Bloomberg) -- China's mega lenders, led by Industrial & Commercial Bank of China Ltd., delivered double-digit profit gains last year as business bounced back, but now face mounting challenges from the debt-plagued property sector and a growing Covid outbreak in the world's second-largest economy.
China's $54 trillion banking sector staged a recovery after policy makers moved to stabilize economic growth and loosened lending restrictions in the second year of the pandemic. ICBC, the world's largest bank, saw profit rise 10.3% last year, the most in almost a decade. The other big lenders -- China Construction Bank Corp., Bank of China Ltd., Bank of Communications Co. and Agricultural Bank of China Ltd. -- all reported their fastest annual profit growth since at least 2013.
But growth is being threatened by the debt crisis that's rippling through the property market and a resurgence in Covid infections, which has forced a partial shutdown in the financial capital Shanghai. Potential fallout from Russia's invasion of Ukraine is another wild card. Several financial executives have pointed to external factors and geopolitical risks that could pressure earnings in 2022.
“The external environment has become more complex and severe this year, but judging from the data from the first two months, the Chinese economy has shown some promising signs,” ICBC President Liao Lin said at a press briefing on Wednesday.
Last week, Bocom president Liu Jun said the lender faces the most challenging year in his 30-year banking career in 2022, citing Covid, geopolitical risks and shrinking domestic demand.
| Earnings Highlights for 2021 |
|---|
| ICBC: Net income up 10.3% to 348.3 billion yuan; NPL ratio 1.42% vs 1.58% year earlier |
| AgBank: Net income up 11.7% to 241 billion yuan; NPL ratio 1.43% vs 1.57% |
| CCB: Net income up 12% to 302.5 billion yuan; NPL ratio 1.42% vs 1.56% |
| BOC: Net income up 12.3% to 216.6 billion yuan; NPL ratio 1.33% vs 1.46% |
| Bocom: Net income up 11.9% to 87.6 billion yuan; NPL ratio 1.48% vs 1.67% |
“The fast profit growth of state banks in 2021 is mainly due to the low base and the rapid growth of asset scale,” said Zhang Shuaishuai, an analyst at China International Capital Corp. “Looking ahead, we anticipate the profit growth will return to a balanced level of 5% to 6%.”
Jefferies Financial Group Inc. analyst Shujin Chen wrote in a March 27 note that the earnings growth for banks likely peaked in 2021.
While banks continued to increase real estate lending, the overall share fell in their loan portfolios. ICBC last year had 705.7 billion yuan ($111 billion) in such loans, down to 6.5% of its portfolio from 7.2% in 2020. AgBank had 830.5 billion yuan in property loans. That accounted for 9.1% of all loans in 2021, down from 9.7% the year before.
Borrowing by Chinese businesses plunged in the first quarter and loan rates surged to a record despite the central bank's efforts to encourage more lending, according to China Beige Book International. Only 16% of the companies surveyed by CBBI, a provider of independent economic data, applied for loans in the first three months of 2022, the lowest since the quarterly poll began in 2012.
Banks also face pressure on their margins. Zhang Min, executive vice president at CCB, said at a press briefing on Wednesday that its net interest margin will face a downtrend this year, which is an issue facing all banks.
But some said measures being taken to support the economy will help the industry. Bank of China President Liu Jin said Tuesday at a press conference that the central government's effort to boost the economy provided opportunities for banking sector growth.
©2022 Bloomberg L.P.
With assistance from Bloomberg
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