Bad loans still weigh on China's biggest lenders

Major Chinese lenders' third-quarter reports show that they are still under pressure from narrowing profit margins, disappointing non-interest income and bad loans.

The latest report card filed by China Citic Bank showed a 14.6 percent year-on-year decline in net profit to 7.9 billion yuan ($1.26 billion) in the three months to Sept 30.

Citic attributed its poor performance to allocation of 4 billion yuan as provision for potential bad loans, and the narrowing of the net interest margin to an average of 2.68 percent in the reporting period from 2.79 percent in the second quarter and 3.01 percent in the first quarter.

The squeeze on interest margins was triggered by the central bank's move in July to further liberalize lending rates by pushing the ceiling at which banks can set their lending rates below the benchmark from 20 to 30 percent in June.

This has touched off a rates war as banks fiercely compete to attract borrowers as loan demand was curtailed by a slowdown in economic growth.

Analysts said that after several rounds of benchmark interest rate cuts, commercial bank profit growth in China has been affected in the past two quarters, and may drop further by the end of the year.

All of the four largest State-owned lenders, which had released third-quarter reports by Tuesday, said they secured net profit growth in the quarter. But some are facing growing pressure from bad debts amid slowing economic growth.

Industrial and Commercial Bank of China Ltd, the world's largest bank by market value, on Tuesday reported 15 percent year-on-year growth in the third quarter, with net profit rising to 62.44 billion yuan between July and September.

ICBC's net interest margin, which measures profitability on loans and other interest-bearing assets, "rebounded" in the first nine months, the bank said in a statement, without providing the figure.

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