China's Big Five lenders see margins shrink in the first quarter

Margins at China's Big Five lenders shrank during the first quarter as banks came under pressure to support cash-starved property developers while loan demand remained weak.

Agricultural Bank of China Ltd's (AgBank) 601288 net interest margin (NIM) contracted to 1.44% at the end of March from 1.6% at Dec. 31, while that of the country's largest lender Industrial and Commercial Bank of China Ltd (ICBC) 601398 fell to 1.48% from 1.61%.

At Bank of China (BoC) 601988, the NIM narrowed to 1.44% from 1.59% at end-2023, while China Construction Bank Corp (CCB) 601939 said its dropped to 1.57% from 1.7% and pointed to a Chinese economy "still confronted by challenges such as inadequate effective demand".

China's Bank of Communications Co Ltd (BoCom) 601328, 601328 also posted a narrower net interest margin on Friday.

ICBC, BoC and CCB all posted drops in first quarter net profit of more than 2% compared with the first three months of 2023, while AgBank recorded a 1.63% drop. BoCom bucked the trend with a 1.44% increase in first quarter net profit.

All five lenders posted flat or slightly improved non-performing loan ratios at the end of March compared with the end of December.

However, smaller banks will lag on their sour debt ratios, S&P said in a note this month.

"Short-term obstacles to the banking sector during this transition include a prolonged property downcycle. Smaller banks could be vulnerable in the process, especially those in city and rural areas because they must endure local economic conditions," said S&P.

($1 = 7.2461 Chinese yuan)