Biggest China Banks’ Profits to Dip for First Time in Four Years

China’s biggest banks are set to report the first annual profit drop in at least four years after they set aside more provisions for bad loans amid the pandemic.

Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of Communications Co., the nation’s three largest lenders, will show single-digit net income declines when they post 2020 earnings on Friday, according to estimates compiled by Bloomberg.

High provisions and bad-loan disposals caused the contraction in lenders’ overall profits, CICC analysts including Zhang Shuaishuai wrote in a note.

ICBC, the world’s largest lender by assets, is expected to report a 6.5% drop in 2020 profit, the first slide since 2016. The decline for CCB, the world’s No. 2 lender by assets, is seen at 5.1%, while smaller Bocom is predicted to see a profit decline of 8.3%, according to data compiled by Bloomberg.

Overall, big state banks’ profits bounced back 60% from a year earlier in the fourth quarter based on regulatory data, Francis Chan, a Bloomberg Intelligence analyst, wrote in a note. Improved net-interest margins and lower credit costs drove the recovery as the pandemic eased in China, Iris Tan, an analyst at Morningstar, said by email.

Higher interest rates, stable business volumes, and asset management business growth in 2021 should contribute to single-digit increases in net income this year, the analysts said.

Shares of all three banks have rebounded by at least 25% from lows in the second half of last year amid expectations that earnings bottomed in the third quarter.

ESTIMATES FOR 2020 (as of March 25)

NameReport DateNet Income, GAAP (billion yuan)Net Interest Income (billion yuan)

Here’s what analysts are saying about the overall banking industry’s 2020 performance and the outlook for 2021:

  • Morningstar:
    • Credit quality, net interest margin and fee income will be 2020 earnings focus
  • CICC:
    • Expect non-performing loan formation rate and credit costs to slide in 2021 due to high base
      • In 2020, banks accelerated recognition and write-off of NPLs, and stepped up provisioning
    • Wealth management businesses are on the right track, with sales agencies contributing service fee income
  • Bloomberg Intelligence:
    • Focus on ICBC’s 4Q profit run rate and efforts to clean up bad debts during the earnings call
      • Watch for commentary on how ICBC has increased its earnings versus peers and if the run-rate can be extrapolated into 2021
    • China Construction Bank’s expected profit rebound could be slowed by regulators’ property-loan ceilings in 2021, as it’s the nation’s largest mortgage lender
    • Bank of Communications’ 2021 profit recovery could be underwhelming due to weaker loan quality and revenue momentum
      • Loan and fee increases may trail peers, curtailing revenue growth

©2021 Bloomberg L.P.

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