Business

Saturday 3 December 2016

China bank profits tipped to flat-line

Shu Zang and Matthew Miller

Published 29/03/2016 | 02:30

A staff member counts money at a branch of Industrial and Commercial Bank of China Limited (ICBC). Photo: Getty Images
A staff member counts money at a branch of Industrial and Commercial Bank of China Limited (ICBC). Photo: Getty Images
Investors sit in front of an electronic board showing stock information at a brokerage house in Zhongshan, Guangdong province, China

China's big four state-run banks are set to report annual earnings growth this week that likely flat-lined after around a decade of terrific profitability, as a surge in soured loans continued unabated while economic expansion weakened.

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Profit growth has slowed in recent years while the sector tackles its greatest challenge since the global financial crisis, with bad loans at a 10-year high while funds set aside to cover the losses fall close to regulatory limits.

While banks ramped up lending during a government stimulus drive during the meltdown, much of that lending went to industries where rapid expansion developed into over-supply as economic growth tapered, raising the risk of default and dragging on profits.

Hinting at the extent of the problem, the regulator has issued a series of notices in recent weeks highlighting the risk of debt extended to industries suffering over-capacity, and advising banks to quickly dispense of bad loans.

The central bank is also preparing to let banks accept debt-for-equity swaps to lower leverage in the corporate sector. Bank of Communications, China's fifth-biggest lender, reports earnings later today, followed tomorrow by Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC). China Construction Bank and Agricultural Bank of China report on Thursday.

Chinese banks are required to set aside funds equivalent to at least 150pc of bad loans to cover losses. That loan loss provision for the sector as a whole was 181pc at the end of last year.

But, at the end of September, it was as low as 153.7pc at BOC and 157.6pc at ICBC. (Reuters)

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