China’s big four pessimistic on full-year profits
(7 November 2012 – China) A worrisome estimate has bounced around that China’s four largest state-owned banks could see profit growth plummet to just 5 percent this year, from an average of over 20 percent in the past few years.
It would be the weakest growth since 2005, when the banks began trading.
The worrisome estimate comes despite Agricultural Bank of China (ABC) and Bank of China (BoC) exceeding third-quarter profit expectations, helped by the central bank’s decision to allow lenders to set their own loan rates.
International Commercial Bank of China (ICBC), the country's largest lender, said it expects net interest margins to fluctuate around current levels or about 2.7 percent.
Rate cuts by the People's Bank of China (PBoC), the central bank, have brought with it lower margins. This drop in profitability will be felt most keenly by smaller banks which have no choice but to compete with the Big Four by offering cheaper loans.
The third quarter earnings growth posted by the Big Four would have been smaller if they had taken bigger impairment charges by putting aside more funds as provisions for bad loans. By cutting back on provisions, a larger part of a bank’s revenue can be counted as profit.
On average, China’s banks set aside 50 basis points of their loan books as impairment charges.
The worrisome estimate comes despite Agricultural Bank of China (ABC) and Bank of China (BoC) exceeding third-quarter profit expectations, helped by the central bank’s decision to allow lenders to set their own loan rates.
International Commercial Bank of China (ICBC), the country's largest lender, said it expects net interest margins to fluctuate around current levels or about 2.7 percent.
Rate cuts by the People's Bank of China (PBoC), the central bank, have brought with it lower margins. This drop in profitability will be felt most keenly by smaller banks which have no choice but to compete with the Big Four by offering cheaper loans.
The third quarter earnings growth posted by the Big Four would have been smaller if they had taken bigger impairment charges by putting aside more funds as provisions for bad loans. By cutting back on provisions, a larger part of a bank’s revenue can be counted as profit.
On average, China’s banks set aside 50 basis points of their loan books as impairment charges.
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