China's top 5 banks may see their weakest year since 2004
The mainland's big five banks are at risk of their weakest full-year profit growth since at least 2004 after first-quarter results showed bad loans rising in a struggling economy.
Industrial and Commercial Bank of China reported a 21 billion yuan (HK$26.3 billion) jump in soured credit in the first quarter, the biggest increase since at least 2008.
Last week, ICBC, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications all reported first-quarter profit growth of less than 2 per cent, down from an average of about 10 per cent for the same period last year.
"We are off to a weak start and earnings growth may get even worse in the second half," said Chen Shujin, an analyst at DBS Vickers Hong Kong. The start of a deposit insurance system this month would add to banks' costs.
The mainland economy is forecast to expand this year at the slowest pace since 1990 and lenders face intensifying competition for funds as the government deregulates the finance industry. The combined profit growth of the top five banks may slow to 4.6 per cent this year, the weakest in at least 12 years, according to analysts' estimates.
Banking shares have jumped amid a mainland stock boom, helping ICBC to overtake Wells Fargo as the world's most-valuable lender. At the same time, mainland banks remain the cheapest in the world, trading at about 7.7 times estimated earnings for 2015, the lowest for lenders with a market value of more than US$10 billion.
"The trend remains that banks' profit growth will continue to slow while asset quality will continue to worsen," said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities HK. "A possible bright spot for the banking industry" was efforts to increase private ownership of lenders, Cao said.
Nonperforming loans at ICBC, Construction Bank, Bank of China and Bank of Communications increased by the most in at least seven years in the first quarter.
ICBC and Agricultural Bank both set aside about 50 per cent more provisions against potential bad loans in the quarter than a year earlier, while Construction Bank boosted those charges by 81 per cent. At Bank of China, provisions fell by 9 per cent while Bank of Communications reported little change.
