Profit growth slips at Chinese banks

BEIJING — Profit growth at China's major banks continued to decline in the third quarter as they dealt with a maturing Chinese economy and interest-rate pressure.

The impact of a summer cash squeeze also continued to be felt, with China Minsheng Banking Corp. (HK:1988)   (CMAKY)  blaming its relatively large borrowing from other banks for crimping its profitability.

In mid-June, the interest rate at which Chinese banks lend to one other spiked after banks found themselves running low on cash and China's central bank declined to inject more money into the system. Analysts say the central bank was trying to stop banks from funding corporate lending using shorter-term interbank loans.

Minsheng, the eighth-largest bank by assets, said Wednesday that between July and September its profit rose 6.3% from a year earlier, to 10.37 billion yuan ($1.7 billion). But its interest income, which accounts for more than 70% of operating revenue, rose by only 2.97%.

The bank said the gap between what it charges for loans relative to its costs narrowed, "owing to interest-rate fluctuations" and its relatively large interbank business. In August, Minsheng Chairman Dong Wenbiao said in an interview that the bank was gradually restructuring to be less dependent on interbank borrowing.

China's major banks, which have huge deposit bases, are less dependent on borrowing from other banks to meet their funding needs, but for many smaller banks interbank borrowing had become an increasingly important part of their business. With interbank rates jumping higher again over the past week, bankers say they can no longer rely on other banks as a consistently cheap source of credit.

China's biggest banks, an important source of funds in China's state-guided economy, continued to post robust profits by international standards. But profitability continues to fall from growth rates that regularly exceeded 20% during China's boom years, as the country's economic growth has slowed and the banks have faced pressure to make more funding available.

Industrial & Commercial Bank of China Ltd. (HK:1398)   (CN:601398)  , which also reported its earnings Wednesday, said its profit rose by 7.6% to 67.2 billion yuan in the third quarter, well below the 15% expansion it posted a year earlier. The slower growth was due to sluggish interest income, which rose by 4.1%. The bank didn't give a reason for the smaller-than-expected increase.

Chinese companies disclose less information in their quarterly earnings reports, which, unlike annual and half-year reports, are unaudited.

Bank of China Ltd. (HK:3988)   (BACHY)   (CN:601988)  said its third-quarter net profit rose 14% to 39.49 billion yuan. In the same period last year, it rose 17%.

Agricultural Bank of China Ltd.'s (HK:1288)   (ACGBF)   (CN:601288)   third-quarter net profit rose 15% to 45.64 billion yuan, down from 16% growth a year earlier.

Bad loans continued to inch up, but they remained low by international standards. ICBC's nonperforming loan ratio was 0.91% at the end of the quarter, up from 0.87% at the end of June.

Economists say banks regularly roll over loans to local governments and state firms that the borrowers would otherwise struggle to repay, helping keep the official bad-loan level low.