China's mega banks reported their biggest quarterly profit increases in recent years as margins recovered from record lows. Industrial & Commercial Bank of China Ltd., the nation's largest lender, saw profit rise 10% to 111.96 billion yuan ($16.8 billion) in the third quarter, the biggest gain in five years. Agricultural Bank of China Ltd. and Bank of Communications Co. also reported double-digit growth, while China Construction Bank Corp. and Bank of China Ltd. posted gains of 9.8% and 6.4% respectively.
The performance suggests the worst of the profitability crunch may be behind the state commercial banking sector, which has spent years absorbing financial costs from a slowing economy and real estate downturn. State banks have acted as economic shock absorbers, trimming mortgage rates and extending credit to troubled developers and government-backed sectors. However, industry-wide net interest margins remain below the 1.8% threshold historically viewed as necessary for healthy capitalization.
ICBC's margin improved 1 basis point to 1.29% after steep prior drops. Asset quality held steady with bad-loan ratios contained. Beijing provided another round of capital support, with the Ministry of Finance selling 300 billion yuan in special bonds to replenish Tier 1 capital at eight institutions, including ICBC and Agricultural Bank.
The two lenders plan to raise up to 260 billion yuan combined, following a 520 billion yuan recapitalization in 2025. The core challenge now is pivoting from capital adequacy to capital productivity, proving lenders can convert thicker buffers into sustainable returns on equity without taking on excessive risk.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing