* Bankers expect net interest margins to stabilise in 2017
* Bad loan pressure persists, more debt-for-equity swaps
* Bankers upbeat about loan demand, pricing
By Matthew Miller and Shu Zhang
BEIJING, March 31 Improving asset quality and
rising loan demand could see China's biggest listed banks
bolster profit growth in 2017, bankers signalled this week, even
as interest margins remain under pressure and bad loan
"The trend is promising," Yi Huiman, chairman of Industrial
and Commercial Bank of China Ltd (ICBC) ,
said on Thursday, citing the impact of broad economic recovery.
Pricing for loans is stabilising and may even pick up as the
cost of funds rise this year, Yi said.
Four of China's top five banks have reported 2016 earnings
so far, with net profit growth less than 2 percent for each.
Bank of China Ltd reports later on Friday.
The results showed deteriorating credit quality and high
corporate debt leverage continued to be a primary challenge for
the industry, as the world's second-largest economy grew last
year at its slowest pace in a quarter of a century.
Bad loans written off and transferred out rose 16 percent
last year to 257.2 billion yuan ($37.34 billion) at the four
banks - ICBC, China Construction Bank Corp (CCB)
, Agricultural Bank of China Ltd (AgBank)
and Bank of Communications Co Ltd
At the same time, profitability in traditional lending fell
with narrowing net interest margins (NIMs), or the difference
between interest earned from borrowers and paid to depositors.
At CCB, NIM shrank 43 basis points to 2.20 percent in 2016.
Bank executives and analysts have attributed NIM compression
to six central bank benchmark interest rate cuts over 2014 and
2015 alongside change in taxation and government policy, such as
the elimination of a ceiling on deposit interest rates.
However, NIMs are stabilising and earnings for the five
lenders are widely expected to improve.
Wei Hou, senior equity analyst for China banks at researcher
Sanford C. Bernstein, said some of the five banks may see profit
increase this year by 5 percent or more.
"Bank management has been very cautious, tightening loan
underwriting standards and preventing future credit costs," Hou
Prices of the banks' Hong Kong-listed shares have risen 6 to
13 percent since the start of 2017 as investors bet on recovery.
Smaller banks will continue to face pressure, said Dexter
Hsu of Macquarie Capital Securities in Taiwan. Tighter liquidity
is likely to drive up funding costs in the interbank market,
lowering earnings on wealth management products, Hsu said.
Beijing's plan to boost investment in infrastructure is
creating more long-term loan demand from state-backed borrowers.
Such spending is "very important" to stabilize economic
growth, CCB President Wang Zuji said on Thursday. Moreover, as
the government is also trying to stimulate consumption, CCB will
lend more to small companies and retail borrowers.
"This year corporate loan demand is stronger than last year,
especially in urban infrastructure construction and
transportation," said ICBC President Gu Shu.
Earlier this month, Premier Li Keqiang told banks "to focus
on their main business" and "strengthen their ability to serve
the real economy."
Banks are trying various means of reducing non-performing
loans. As well as huge write-offs, the banks are swapping
questionable debt into equity, saving the amount of money they
would have to set aside should such debt turns bad.
Debt-to-equity deals are part of a wider government campaign
to restructure mainly state-owned enterprise debt.
By the end of last year, 12,836 creditor committees had been
set up nationwide, examining borrowing of 14.85 trillion yuan,
representing 17 percent of total commercial bank loans, showed
banking regulator statistics.
Since October, banks have signed about 500 billion yuan in
debt-to-equity swaps in mostly state-owned coal and steel
enterprises, according to analysts who expect the amount to
double this year.
CCB's Wang said he expected swaps to reach 300 billion yuan
by the end of March.
AgBank President Zhao Huan on Wednesday said his bank had
swap deals with eight firms with 70 billion yuan in total
agreements, and that it was negotiating with over 20 more.
"Leading indicators, including the gap between
non-performing loans and overdue loans and the overdue loan
ratio, generally are showing positive changes," said ICBC's Yi.
($1 = 6.8885 Chinese yuan renminbi)
(Reporting by Matthew Miller and Shu Zhang; Additional
reporting by Engen Tham; Editing by Christopher Cushing)