[ET Net News Agency, 4 May 2017] S&P Global Ratings said today that Chinese banks'
financial results in the first quarter of 2017 were in line with the credit rating
agency's expectations, and therefore have no immediate impact to our issuer credit ratings
on the banks.
For the eight Chinese banks we rate, credit metrics stabilized in the first three months
of 2017, despite elevated interbank lending rates following tightened regulatory checks on
carry trades and wealth management products, S&P noted.
Profitability and asset quality held up thanks to China's stronger-than-expected
economic expansion in the first quarter, and the resultant abatement in credit losses.
However, net interest margins (NIMs) continue to narrow, particularly for banks that rely
more heavily on wholesale funding, it added.
S&P's rated Chinese banks include Industrial and Commercial Bank of China Ltd.
(ICBC)(01398), China Construction Bank Corp. (CCB)(00939), Agricultural Bank of China Ltd.
(ABC)(01288), Bank of China Ltd. (BOC)(03988), Bank of Communications Co. Ltd.
(BoCom)(03328), China Merchants Bank Co. Ltd. (CMB)(03968), Shanghai Pudong Development
Bank Co. Ltd. (SPDB)(Shanghai: 600000), and China Minsheng Banking Corp. Ltd.
(CMBC)(01988).
Total net profits of the eight banks grew 3.0% year-on-year in the quarter. Returns on
average assets ranged from 0.9% to 1.3% on an annualized basis. The banks' reported
nonperforming loan (NPL) ratios barely changed, ranging from 1.45% to 1.92% with the
exception of ABC, which recorded an NPL ratio of 2.33%.
Banks' regulatory capital ratios held up, due to moderate year-to-date balance sheet
growth of between 0.6% and 4.2% in the first quarter. Slower asset growth was particularly
evident among mid-sized national banks, including CMB, SPDB, and CMBC, due largely to
shrinking interbank assets amid a tightening regulatory stance toward interbank carry
trades.
S&P still expects banks' earnings to slightly decline for the full year. While asset
quality metrics look adequate in the first quarter, the agency believes rising funding
costs for corporate borrowers, together with reduced support for overcapacity industries
as the government's "supply-side" reforms proceed, will lead to higher credit losses.
Mark-to-market losses from bond investments will also detract from bank earnings. Credit
divergence across the rated Chinese banks will likely continue. It thinks the crackdown on
speculative trading in the interbank market and the adoption of macro-prudential
assessment to capture risks in banks' off-balance sheet activities will have a more
profound impact on some mid-sized banks. Banks with stronger deposit franchise including
ICBC, CCB, ABC, BOC, and CMB will likely see NIM stabilizing faster this year, and are
better positioned against tightening domestic liquidity and regulatory crackdowns on the
interbank market. (KL)