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WRAPUP 1-China's Big Four banks deliver strong profits as bad debts shrink

reuters.com · 04/29/2022 07:11
WRAPUP 1-China's Big Four banks deliver strong profits as bad debts shrink

Adds details, analyst comments

China's Big Four lenders post strong Q1 net profit

NPL ratios fall

Country's banks face asset pressure as lockdowns loom

- Four of China's largest five state-owned banks posted their strongest first quarter net profit growth for at least 7 years on Friday, as soured debts fell.

While many of the country's lenders are struggling with loans to cash-strapped developers, China's largest banks have weathered the storm with their diversified portfolio and lower exposure to risky property clients.

Industrial and Commercial Bank of China Limited 1398.HK IDCBY, the world's largest lender, reported a 5.7% rise in first-quarter net profit, the highest growth in that period since at least 2015. nL3N2WO0QT

China Construction Bank Corp 0939.HK (CCB), Agricultural Bank of China Ltd (AgBank) 1288.HK ACGBY and China's Bank of Communications Co Ltd (BoCom) BCMXY, 3328.HK followed suit, with the highest first-quarter net profit growth since at least 2014. nL3N2WO0UBnL3N2WO0QCnL3N2WO0PL

All four reported shrinking or steady non-performing loan ratios.

While first-quarter results show a rebound by the big banks from slowing economic growth brought on by the original COVID-19 outbreak, they now face a resurgence two years later of the more transmissible variant Omicron which is sweeping China.

China's financial hub Shanghai has been locked-down for four weeks, as the capital Beijing began mass testing in some areas. NL3N2WR0GJ

"The renewed business disruptions from China's coronavirus-induced lockdowns will continue to weigh on economic sentiment and activity and add to banks’ asset risks," said Yulia Wan, a banks analyst at Moody's.

One banker at a top-ten Chinese bank said she had seen the greatest impact among small to medium-sized enterprises.

"The smaller borrowers, especially those in manufacturing are really suffering this time round, because they don't have the cash reserves like some of the bigger companies to be able to keep operations running indefinitely," she said, adding that her bank was not handing out a blanket pass to those suffering cash-flow issues caused by the lockdowns.

China notified its "Big Four" state lenders on Friday that they can issue loss-absorbing bonds, in a move that would help prevent the spread of any potential instability in its financial system. nL2N2WR0Q3

China's lenders have a challenging year ahead.

"Slower GDP growth, lower interest rates, ongoing property sector distress and external uncertainties arising from the Russia-Ukraine military conflict will weaken Chinese banks'

operating environment and asset risk in the coming 12-18 months," Moody's said in a note earlier this month.

($1 = 6.5861 Chinese yuan renminbi)

(Reporting by Engen Tham and Selena Li; Editing by David Goodman and Alexander Smith)

((cheng.leng@thomsonreuters.com; +8610-5669-2129;))