China’s Big Banks Post Profit Gains on Lower Impairments

China’s biggest banks delivered profit gains last year as sliding credit impairments offset narrowing margins. 

Industrial & Commercial Bank of China Ltd., the nation’s largest, said net income rose 0.5% to 365.9 billion yuan , according to a Friday filing. Agricultural Bank of China Ltd. said profit rose 4.7% while China Construction Bank Corp. delivered a 0.9% increase. 

All three banks saw their margins continue to narrow from record low levels, while asset quality improved. 

China policymakers pivoted to stimulating growth in September with sweeping support measures including cuts on its loan prime rates and mortgage interests. That’s driven down loan yields for lenders, squeezing their margins to a record low last year. 

The results followed similar mild profit growth reported by peers Bank of Communications Co. and Bank of China Ltd. earlier in the month, as lower credit impairment offset a margin contraction.

Bloomberg Intelligence expects their margin pressure to persist into 2025, with the largest banks recording a worse-than-consensus decline of 13 to 16 basis points. The sector will also contend with falling returns on equity, as Beijing’s latest economic push could bring “collateral damage” by bringing ample credit but at lower costs, analyst Francis Chan wrote in a note this week. 

The banking industry’s asset quality remains under pressure. Despite a decrease in bad loan ratio in the real estate sector, which has been a drag on their books, officials cautioned more bad debt could arise from the property market.

Bocom vice president Gu Bin said last week some loans in the sector still face the risk of being downgraded to non-performing loans as developers’ cash flow and sales have yet to recover. BOC expects the “deep correction” in the real estate market to continue weighing on its asset quality, vice president Wu Jian said at a Wednesday briefing. 

China’s big banks are accelerating a drive to write off soured property loans to clean up their balance sheets, so as to free up resources to lend to other key areas desired by Beijing. The finance sector got rid of a record 3.8 trillion yuan in bad assets last year, with loans to property developers accounting for a lion’s share. 

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