(Bloomberg) -- China’s biggest state-owned banks eked out profit gains in the third quarter, defying a slowdown in the broad economy and deteriorating margins.
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Industrial & Commercial Bank of China Ltd. posted a 3.8% gain in profits, according to a statement Wednesday. Smaller rivals Agricultural Bank of China Ltd., Bank of Communications Co., Bank of China Ltd. and China Construction Bank Corp. delivered increases ranging from just above 1% to almost 6%.
China’s $61 trillion banking industry has been battling record low margins, sinking profits and rising bad debt as they have been called on to backstop the sluggish economy. Lenders have been directed to offer cheap loans to the cash-strapped local government financing vehicles and to enact broad cuts to mortgage rates.
All the banks reported a surge in so-called “other operating income,” without elaborating. Some lenders including Construction Bank benefited from lower provision charges.
The profit growth of the big banks is greatly impacted by provisions, meaning a reduction in provisions will lead to an increase in profits, said Liao Zhiming, an analyst at Huayuan Securities Co. “Still, the revenue growth rate of big banks in the third quarter was actually slow and some even dropped, which indicates that their true profitability is weakening,” Liao said.
Combined profits at China’s commercial lenders rose 0.4% in the first half, the slowest pace since 2020, according to official data. The sector’s margins dropped to a record low of 1.54% as of June, well below the 1.8% threshold regarded as necessary to maintain reasonable profitability.
China last month unveiled its biggest package yet to shore up its sputtering economy, slashing policy rates as well as borrowing costs on $5.3 trillion in outstanding mortgages. Major lenders followed to cut their deposit rates earlier this month then, a second reduction this year as they rushed to salvage record low margins amid weakened profitability.
Bloomberg reported earlier that China is considering injecting up to 1 trillion yuan of capital into its biggest state banks to increase their capacity to support the world’s second-largest economy, even though the top six have capital levels that far exceed requirements.
(Updates with more earnings in fifth paragraph.)
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