Growth in profit for lenders gets boost from nation's economic recovery in first six months

Several commercial banks in China posted double-digit growth in net profit in the first half, while their nonperforming loan ratios stood still or even declined, recently issued interim reports and financial previews of the sector said.

China Merchants Bank Co Ltd, a national joint-stock commercial lender based in Shenzhen, Guangdong province, saw its net profit attributable to shareholders of the bank increase by 22.82 percent year-on-year to 61.15 billion yuan ($9.44 billion) during the first six months.

Bank of Ningbo Co Ltd recorded a 21.37 percent growth in year-on-year net profit attributable to shareholders of the parent company in the first half. The commercial lender headquartered in Ningbo, Zhejiang province, has continuously improved its profit-making structure and diversified its sources of profits, with retail banking and capital-light businesses contributing a higher percentage of profits, its interim report said.

Over the same period, Jiangsu Zhangjiagang Rural Commercial Bank Co Ltd, Wuxi Rural Commercial Bank Co Ltd and Jiangsu Changshu Rural Commercial Bank Co Ltd also saw their net profits climb 19.68 percent, 15.38 percent and 15.24 percent, respectively.

Commercial banks in China realized a total net profit of 1.1 trillion yuan in the first half, up 11.1 percent year-on-year, said the China Banking and Insurance Regulatory Commission.

During the same period of last year, commercial banks realized a total net profit of about 1 trillion yuan, falling 9.4 percent on a yearly basis. Due to the low-base effect, the regulator expects the Chinese banking sector to see significant profit growth in the first half, which is similar to the feature of various industries of the real economy, Liu Zhongrui, deputy director of the Statistics, IT and Risk Surveillance Department of the CBIRC, said at a news conference on July 14.

"The banking sector has forgone part of its profit to stabilize the real economy since the COVID-19 pandemic started to affect the macroeconomy more than a year ago. Although the profit of the banking sector fluctuated temporarily, the rebound in profit of the real economy will be good for the improvement of banks' asset quality and will give strong support to high-quality development of the banking sector," Liu said.

Zhou Ce, an analyst with Chasing Securities Co Ltd, said in a report that the Chinese banking sector's operating environment has improved and its fundamentals are recovering. This led to better interim results of listed banks and will boost the valuation of banking stocks.

"Commercial banks' profit growth recovered strongly in the first half. Benefiting from the economic recovery, they further consolidated asset quality while maintaining a steady return on assets. Their net interest margins have also stabilized and rebounded," Zhou said.

In the first half, China effectively contained financial risks in key areas and overall credit risk was controllable. The nonperforming loan ratio of commercial banks was 1.76 percent by the end of the second quarter, down 0.05 percentage point from the end of the last quarter, the CBIRC said.

China Merchants Bank announced a decline in the NPL ratio by 0.06 percentage point from the end of last year to 1.01 percent as of June 30. Wuxi Rural Commercial Bank said its NPL ratio fell 0.17 percentage point to 0.93 percent over the period, while Bank of Ningbo's NPL ratio stood at 0.79 percent.

Bank of Ningbo said it took a series of risk management measures including risk warning, post-lending revisits of businesses, industry research and studies of industry chains, so the bank could better deal with a downtrend in the economic cycle and an industrial structure adjustment.

The drop of NPL ratios is partly due to increased efforts to dispose of nonperforming loans, said Liu of the CBIRC.

"The banking sector disposed of a historical record 3.02 trillion yuan of nonperforming assets in 2020. It continued to dispose of 482.7 billion yuan of NPAs in the first quarter, which exceeded the amount of the same period last year. We expect that the figure of NPA disposal in the first half will also surpass that of the same period last year," he said.

The regulator urged banks to conduct comprehensive risk assessments, have sufficient provisions for loan impairment, make plans for dealing with a rebound in nonperforming loans and further ramp up efforts to dispose of NPLs.