Many listed banks in China registered robust growth in net profit last year with improved asset quality, preliminary earnings data showed by Monday, even as analysts warned of a spike in bad loans this year due to the novel coronavirus outbreak.
Analysts said asset quality improved at most banks after they readjusted their credit structure by issuing a larger amount of consumer loans and mortgage loans, which are less sensitive to economic cycles than loans issued to the manufacturing sector. Besides, banks also stepped up efforts to write off nonperforming loans.
Out of the 24 listed banks that had issued preliminary earnings estimates by Monday, 19 or nearly 80 percent of the total reported double-digit net profit growth on a yearly basis.
Total net profit attributable to shareholders of the 24 banks reached 439.05 billion yuan ($61.98 billion) last year, up 10.89 percent on a yearly basis. Bank of Ningbo Co Ltd, a city commercial bank headquartered in Ningbo, Zhejiang province, posted the highest yearly growth in net profit of 22.6 percent, followed by Jiangsu Changshu Rural Commercial Bank Co Ltd with 20.66 percent.
“The performance of listed banks improved steadily last year, partly because commercial banks increased loans to the real economy, the part of the economy that produces goods and services. Meanwhile, the People’s Bank of China, the central bank, maintained reasonable and sufficient liquidity in the banking system, triggering a decline in banks’ overall borrowing costs,” said Wen Bin, chief analyst at China Minsheng Banking Corp.
“Many of the listed banks also strengthened their capacity to serve the real economy and safeguard against risks by further increasing their capital adequacy ratios through capital replenishment,” Wen said.
Most of the banks reported improved asset quality last year, despite the greater downward pressure. Nineteen of the 24 banks saw their NPL ratios drop on a yearly basis last year, according to their preliminary earnings estimates.
Jiangsu Jiangyin Rural Commercial Bank Co Ltd saw the biggest decline in bad debt levels of 32 basis points on a yearly basis to 1.83 percent, followed by China Merchants Bank with a 20-basis-point fall to 1.16 percent. The NPL ratio of Bank of Zhengzhou Co Ltd fell by 10 basis points to 2.37 percent, which was the highest among the 24 commercial lenders.
Of the seven national joint stock commercial lenders in the list, China Merchants Bank Co Ltd saw the fastest net profit growth of 15.28 percent, followed by Ping An Bank Co Ltd (13.6 percent) and China Everbright Bank Co Ltd (10.98 percent).
Last year, 15 banks, including five large State-owned commercial lenders and seven national joint-stock commercial lenders, issued perpetual bonds totaling 569.6 billion yuan. A perpetual bond is a bond without a maturity date. The instruments are nonredeemable, but offer steady returns.
Liao Zhiming, chief banking analyst at Tianfeng Securities Co, said the novel coronavirus outbreak may increase nonperforming loans at commercial banks by 250 billion yuan this year.
Unlike large banks, city commercial and rural commercial banks will be more seriously affected by the outbreak, as small business loans account for a large chunk of their loan portfolio, Liao said in a report on Feb 13.
By the end of February, the outstanding balance of nonperforming loans of the Chinese banking sector was about 3.3 trillion yuan. The NPL ratio increased by 5 basis points from the previous month to 2.08 percent, according to data from the China Banking and Insurance Regulatory Commission.