China’s ICBC Sees Profit Rise 5.8% Amid Slowing Economy

(Bloomberg) -- Industrial & Commercial Bank of China Ltd., the world’s largest lender by assets, posted a 5.8% increase in third-quarter profit amid a deepening economic slowdown.

Net income for the three months through September rose to 83.8 billion yuan ($11.8 billion) from 79.2 billion yuan a year earlier, the Beijing-based lender said in a filing on Friday.

ICBC led the nation’s biggest state-owned banks in reporting stable earnings even as China’s economy expanded at the slowest pace since the early 1990s and corporate defaults surged. The outlook remains challenging as increasing efforts to boost growth and help struggling small businesses threaten to squeeze lending margins and lead to a pileup of soured debt.

China continued its grind to more moderate growth in the third quarter as investment slowed. Gross domestic product rose 6% in the July-September period from a year ago, the slowest pace since the early 1990s.

Also Friday, Agricultural Bank of China Ltd., the nation’s third-largest lender, said its net income for the latest quarter rose 6.1% to 59.2 billion yuan ($8.4 billion) from 55.8 billion yuan a year earlier.

Chinese banks reported 2.2 trillion yuan of non-performing loans at the end of June, the highest in at least 15 years, according to the China Banking and Insurance Regulatory Commission. Xiao Yuanqi, a spokesman at the regulator, said this week that bad loans are a key risk for the industry.

Efforts to clean up lenders’ balance sheets will continue “amid subdued economic growth and ailing corporate solvency,” CCB International Ltd. analysts led by Lawrence Chen wrote in a note this month.

What Bloomberg Intelligence Says

“Industrial & Commercial Bank of China’s profit growth may stay in the low- to mid-single digits in 2019 amid the nation’s broad-based economic slowdown and a lingering trade war. Margin risks may persist on deposit rivalry and monetary easing in China.”

--Analyst Francis Chan

--Click here for the research

China recently revamped its system of interest rates with the aim of making them more market-oriented. The new market benchmark, the Loan Prime Rate, will be determined by submissions from a panel of 18 lenders rather than set by the central bank. In the short term, that may mean thinner margins from banks as demand for credit in a slowing economy lessens.

Shares of the top four banks have lost an average 3.5% in Hong Kong this year, trailing the benchmark Hang Seng Index and sending their valuations to near-record lows.

The so-called Big Four may report 5.1% profit growth in the third quarter, slightly lower than the previous three months, as net interest margins edge down and fee income growth from services such as wealth management decelerates, according to a forecast by China International Capital Corp.

--With assistance from Jeffrey Black.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net;Alfred Liu in Hong Kong at aliu226@bloomberg.net;Lucille Liu in Beijing at xliu621@bloomberg.net

To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, Sam Mamudi

©2019 Bloomberg L.P.

With assistance from Bloomberg