Shrinking margins hurt Big Four lenders

China's Big Four banks saw their profits decline in the first quarter amid shrinking margins, with mainland lenders under pressure to support troubled property developers and boost weak demand for loans.

Industrial and Commercial Bank of China (1398), the world's largest lender by assets, said its net profit fell 2.78 percent to 87.65 billion yuan (HK$94.7 billion) in the first quarter of this year.

Its net interest margin - a key gauge of profitability - narrowed to 1.48 percent from 1.61 percent at the end of 2023. And the non-performing loans ratio came in at 1.36 percent, the same as the end of last year.

Agricultural Bank of China's (1288) first-quarter profit fell 1.63 percent to 70.4 billion yuan.

Its net interest margin narrowed to 1.44 percent from 1.6 percent at the end of 2023, while the non-performing loans ratio fell to 1.32 percent.

China Construction Bank's (0939) first-quarter profit slid 2.2 percent year-on-year to 86.8 billion yuan, while its net interest margin narrowed to 1.57 percent from an annual 1.7 percent in 2023.

And the Bank of China's (3988) first-quarter profit declined 2.9 percent to nearly 56 billion yuan. Its net interest margin stood at 1.44 percent and its non-performing loans ratio went down 0.03 percentage points to 1.24 percent.

Meanwhile in Hong Kong, the Bank of China (Hong Kong) (2388) said its net operating income before impairment allowances rose 16.8 percent in the first quarter from a year ago.

Among other mainland lenders, China Merchants Bank (3968) saw first-quarter profit fall nearly 2 percent to 38.08 billion yuan while Bank of Communications (1328), which revealed its earnings last Friday, bucked the trend with a 1.44 percent increase for net income over the same period.

Chinese lenders are in the midst of a prolonged squeeze that has narrowed margins to record lows. Beijing has over the past few years called on the banks to cut loan rates and beef up lending support to areas including its cash-strapped property sector and local governments.

Earnings prospects will likely remain subdued this year. Bloomberg Intelligence estimates bank loan growth to slow to high-single digits in 2024 from 11 percent last year due to soft demand from both corporate and household segments.

The government may press state banks to continue cutting lending rates, further eroding their margins and making it difficult to grow profits, BI analyst Francis Chan wrote in a note.

In other earning reports, PICC P&C (2328) said its net profit slumped 38 percent to 5.87 billion yuan in the first quarter of this year amid challenges to underwriting businesses posed by extreme weather and natural disasters, as well as the impact of the volatility in capital market.