August 30, 2018 / 10:54 AM / 20 days ago

China's top bank ICBC flags trade war risks as profits rise

SHANGHAI/BEIJING (Reuters) - Industrial and Commercial Bank of China (1398.HK)(601398.SS), the world’s largest commercial bank, joined its peers in reporting higher first-half profit and a steady bad loan ratio, but flagged trade tensions as a risk to economy.

FILE PHOTO: A staff helps customers to use automated teller machines (ATM) at Industrial and Commercial Bank of China's (ICBC) branch at its headquarters in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon/File Photo

ICBC, like other big state-owned banks, has been seeing a rebound in business with its diverse revenue sources and strong capital buffers giving it an edge over smaller peers as China cracks down on risk in the broader financial sector.

But “trade friction is bringing uncertainty to global and China economy”, ICBC Chairman Yi Huiman said.

The bank will conduct stress tests on clients hit by trade tensions and provide financing to alleviate any temporary difficulties, he told a news conference on Thursday.

For the six months ended June, China’s biggest bank by assets made a profit of 160.4 billion yuan (18.04 billion pounds), compared with 153 billion yuan in the same period a year earlier, the bank said in a filing.

The first-half figure implies a net profit of 81.6 billion yuan for the second quarter, up 5.7 percent from 77.2 billion yuan a year ago, according to Reuters calculations.

Analysts had expected a 5.2 percent rise in quarterly net profit, according to four analyst estimates compiled by Reuters.

ICBC’s net interest margin (NIM), the difference between interest paid and earned - a key gauge of profitability, was 2.30 percent at the end of June, steady versus end-March levels.

Margins are expected to improve for banks across the board in the second half with Beijing pumping funds into the banking system and rolling out support measures for local businesses to cushion the impact from an escalating U.S.-China trade war.

Last week, Washington and Beijing activated another round of duelling tariffs on $16 billion worth of each country’s goods. The two have threatened duties on most of the rest of their bilateral trade.

Economists reckon that every $100 billion of imports hit by tariffs would cut global trade by around 0.5 percent. They have assumed a direct impact on China’s economic growth in 2018 of 0.1 to 0.3 percentage points.

In a separate statement, ICBC said it planned to raise up to 100 billion yuan in preference shares to boost its Tier 1 capital adequacy ratio and improve its capital structure.

OUTLOOK BRIGHTER FOR BIG BANKS

Fitch Ratings said Beijing’s recent measures to support the economy amount to a loosening of its policy stance and a partial shift away from the focus on addressing financial risks.

Broader calls for banks to support lending to the real economy and declines in interbank interest rates suggest that credit growth is now more likely to stabilise or marginally accelerate during the remainder of the year, it said.

But analysts fear an unrestrained, credit-fuelled growth, could accelerate a build-up in bad loans as the world’s second biggest economy cools, undermining Beijing’s push to reduce riskier lending and a mountain of debt.

ICBC’s non-performing loan (NPL) ratio held steady at 1.54 percent at end-June from end-March.

The country’s other big banks also saw NPL ratios remain steady or improve, in stark contrast to the wider banking sector where, according to data from the China Banking and Insurance Regulatory Commission, the ratio hit 1.86 percent at end-June - the highest since 2009.

“We expect a large fiscal and monetary stimuli going forward exactly to engineer enough growth to avoid liquidity or financial problems in corporates due to trade war”, but this will mostly help the large state-owned banks, said Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis.

“I expect top four Chinese banks to do well in H2 and possibly in 2019,” she added.

Reporting by Engen Tham in Shanghai, Shu Zhang in Beijing and Sumeet Chatterjee in Hong Kong; Editing by Himani Sarkar and Jane Merriman

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