Big banks report higher growth in Q3 lending income

An employee counts yuan banknotes at a bank in Huaibei, Anhui province, June 22, 2010. [Photo/Agencies]

China's big four banks posted higher growth in lending income and improvements in profitability and asset quality, with average daily income of 2.5 billion yuan ($377.3 million) in the third quarter.

The Industrial & Commercial Bank of China Ltd (ICBC), the Agricultural Bank of China Ltd, the Bank of China Ltd and the China Construction Bank Corp, which had released their earnings reports by Tuesday, all saw double digit growth in net interest income, thanks to improving interest margins amid stable and healthy economic growth.

In terms of net income growth, the Agricultural Bank of China posted 4.89 percent year-on-year growth, the highest among the big four. In terms of asset quality, the four lenders reported declining non-performing loan rates in the third quarter. The Agricultural Bank of China's NPL rate dropped, thanks to more efforts in risk management and the better macro economic environment, according to the bank.

According to Yi Huiman, chairman of ICBC, banks are facing challenges on asset quality management, but the risks are likely to dissolve soon.

"As economic growth enters the new normal, lenders will experience greater challenges for controlling the asset quality. But with strengthened risk management and credit quality controls, it is expected that the asset quality will improve steadily amid stable and improving macro economic conditions", said Yi during a recent conference.

Share prices of China's biggest lenders have been rallying year-to-date despite fluctuations after profit-taking from time to time. Shares of Shanghai-listed ICBC rose from 4.4 yuan at the beginning of 2017 to 6.1 yuan at the end of October, a 38.6 percent growth. Shares of the Agricultural Bank of China rose from 3.1 yuan to 3.7 yuan during the same time, a 19.4 percent gain.

Analysts said that as more lenders are refocusing on supporting real economy growth and meeting financing needs after market-oriented research and studies, banks are likely to become more quality-focused.

"The performance of lenders is expected to further improve in the fourth quarter as profit margins recover and risks dissolve, with rising rate of return on equity (ROE) supporting valuation growth," said a research note from CITIC Securities.

Investors can closely watch the fundamentals of banks, as most of the growth in the lending sector is driven by fundamentals, such as profitability in lending and intermediate business income such as commissions, said Ma Kunpeng, an analyst with China Merchants Securities in a research note.