Profits at China’s Five Largest Banks Grow 6% to 11% in Third Quarter
Key Facts
Net profits at China’s five largest state-owned banks grew between 6% and 11% in the third quarter from the same period a year earlier, according to Reuters, the fastest quarterly growth for each since 2021 or 2022. The group included Industrial and Commercial Bank of China, the world’s largest bank, as well as Agricultural Bank of China, China Construction Bank, Bank of Communications and Bank of China. Agricultural Bank of China reported profit growth of 10.8%, China Construction Bank 9.8%, Bank of Communications 10.1%, and Bank of China 6.4%. The results showed an improvement in major lenders’ profits during the quarter, but the sources of that improvement varied across interest income, investments and fees. Asset quality and interest margins also stood out among the indicators shaping how durable the improvement may be.
At Industrial and Commercial Bank of China, net interest income rose 11% year over year to 177.82 billion yuan in the third quarter, according to Dow Jones Newswires. Net gains from financial investments doubled to 19.78 billion yuan, adding to sources of profit support during the period. By contrast, net fee and commission income fell 3.4% to 23.045 billion yuan compared with the same quarter a year earlier. The figures reflect a divergence between growth in interest- and investment-related revenue and a decline in fee-based revenue. The bank’s net interest margin was 1.29% at the end of September, unchanged from the end of June.
Industrial and Commercial Bank of China’s nonperforming loan ratio was unchanged at 1.29% at the end of September, the same level recorded three months earlier, according to Reuters. Together with the unchanged net interest margin of 1.29%, the reading provides two indicators of asset quality and banking profitability at quarter-end. Across the sector, Reuters said bond gains remained a key factor in major banks’ profits. But an analyst at ANZ warned that this support may not last as bond yields fall, saying, "The support cannot continue, as bond yields are very low now." Part of the profit growth was therefore linked to investment factors whose contribution may vary in coming periods.
The results were announced alongside mixed signals from China’s manufacturing sector. The RatingDog manufacturing index came in at 52.0 in October, down from 52.1 in September but above the Reuters poll forecast of 51.6. The index remained above 50, the level separating expansion from contraction, while output rose at its fastest pace in six months. But export order growth slowed to a three-month low, and output prices fell as competition intensified. This put improved output alongside signs of slowing external demand and price pressure at factories.
The official survey showed a weaker picture, with the manufacturing purchasing managers’ index falling to 49.3 in October from 50.1 in September and 49.8 in August, according to The Associated Press. The export orders index also fell to 48.7 from 50.0, while the output index declined to 49.8 from 51.7. The official reading below 50 indicates contraction, while the RatingDog index remained above that threshold in the same month. China Construction Bank’s management said the economy had maintained overall stability, with relatively rapid growth in production and supply and strong foreign trade. Management added that the economy faced challenges including strong supply and weak demand, linking industrial activity with pressures confronting lenders and companies.
Investors are looking ahead to Chinese price data scheduled for November 9, according to the National Bureau of Statistics calendar. The release includes the November consumer price index report and the industrial producer price report. The data will provide a subsequent reading on the price trajectory after output prices fell in the RatingDog survey as competition intensified. It will also follow divergent manufacturing readings in October from the private and official surveys. The price results will give investors another indicator for assessing the operating environment for Chinese banks.