China’s six state-owned banks reported a total net profit exceeding 1 trillion yuan ($138 billion) in the first three quarters of 2022, a small rise from a year earlier. But the bad news is their profitability shrank.
By October 28, all the major Chinese banks had disclosed their earnings for the first nine months of this year.
According to statistics from Sohu Finance, the six major banks recorded a total operating income of 2.84 trillion yuan ($392 billion) in January-September, a year-on-year increase of 2.36%.
Their combined net profit attributable to the shareholders was 1.03 trillion yuan ($142 billion), a year-on-year increase of 6.47%.
As of the end of September, the six major banks’ total assets were 162.53 trillion yuan ($22.4 trillion), an increase of 11.73% from the end of 2021.
In the third quarter alone, the China Construction Bank led state lenders with a net profit increase of 8.61% from a year earlier.
The Industrial and Commercial Bank of China, the world’s largest commercial lender by assets, reported net profits up 6.8% year-on-year.
The Agricultural Bank of China posted net profits up 6.4%, the Bank of Communications was up 6.7%, and the Bank of China was up 4.83%.
According to Reuters, these state-owned banks reported higher profits despite property market woes.
However, most of the major banks witnessed a squeeze on net interest margins (NIMs) – a key gauge of their profitability. This indicates that loan demand in China is weak due to a slowing economy.
The net interest margin of the Industrial and Commercial Bank of China fell from 2.03% at the end of the second quarter to 1.98% at the end of third quarter.
The Agricultural Bank of China saw a small fall over the same period, from 2.02% to 1.96%, and the Bank of Communications from 1.53% to 1.50%.
The China Construction Bank’s NIM dropped from 2.09% to 2.05%.
The Bank of China bucked the trend, with its NIM rising slightly from 1.76% at the end of June to 1.77% at the end of September.
Michael Zeng is a banking analyst at Daiwa Capital Markets. He explained that China’s overall credit demand remained weak, and its lenders have to lower loan-interest rates to lend out money, putting pressure on their net interest margins.
The analyst forecast that the net interest margins of China’s banking sector could further narrow in the fourth quarter of this year.