Banking on brighter prospects

China's major banks recorded slower profit growth in 2013 as they tightened control over lending to struggling industries, real estate markets and local government financing vehicles amid an economic downturn. [Photo / Asianewsphoto]

Country's 'Big Four' banks are set to see a dip in profit growth amid an economic slowdown, Jiang Xueqing reports

China's major banks recorded slower profit growth in 2013 as they tightened control over lending to struggling industries, real estate markets and local government financing vehicles amid an economic downturn.

On Monday, China Construction Bank Corp, the nation's second-largest bank by assets, announced that its net profit rose 11.1 percent to 215.12 billion yuan ($34.6 billion) last year, the second-slowest pace since the bank was listed on the Hong Kong Stock Exchange in 2005.

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Industrial and Commercial Bank of China Ltd, the nation's largest lender, posted a net profit of 263 billion yuan for 2013 on March 27, up 10.2 percent from the previous year, but the profit growth went short of the 14.5 percent expansion in 2012 and was the slowest since its initial public offering in 2006.

Bank of China Ltd, the nation's fourth-biggest lender, reported a 12.35 percent profit rise on March 26, the bank's third-slowest growth since it went public in 2006.

Agricultural Bank of China Ltd, the third-biggest lender, said on March 25 that its profit increased 14.5 percent last year for its slowest growth since listing its shares in 2010, down from 19 percent in 2012.

The slowdown in profit growth for China's State-owned banks is in line with the country's cooling economy.

China lacks a new engine of economic growth and is still in the process of developing new ways to stimulate the economy, said Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics in Beijing.

"We anticipate that the profit growth of the Chinese banking industry is very likely to fall below 10 percent this year. It will gradually narrow down to a level that equals to or goes slightly above that of the country's GDP growth," Guo said.

His forecast was echoed by Ni Jun, a financial analyst at Shanghai-based Greenwoods Asset Management.

Ni pointed out that the economic slowdown will lead banks to lower lending interest rates while raising the nonperforming loan ratio and allowance for nonperforming loans, which indicate the extent of funds a bank has kept aside to cover loan losses. As a result, the banks will suffer from a profit squeeze.

"Because the Chinese economy is weakening this year, nonperforming loans will increase significantly. The asset quality of commercial banks will remain under pressure for at least a year," he said.

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