Bank of China, Agricultural Bank of China 2020 profits beat estimates thanks to fourth quarter rebound

Georgina Lee
·3-min read

Two of China’s biggest state-owned banks reported better-than-expected 2020 full year earnings on Tuesday, helped by a strong rebound during the fourth quarter.

Bank officials signaled cautious optimism for 2021, believing the worst of the pandemic’s impact on their asset quality to be largely over, thanks to the country’s economic rebound.

“Overall for 2021, as the real economy recovers and a macro environment that is conducive for banks to manage risks [returns], we should see the quality of our assets stabilise,” said Zhang Xuguang, an executive vice-president at Agricultural Bank of China during a results teleconference.

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By Tuesday, China’s six leading state-owned commercial banks had reported their full-year results. On average their fourth quarter net profit grew by 60 per cent, according to Chen Shujin, an analyst at Jefferies.

Net profit at Agricultural Bank of China rose 1.8 per cent to 215.9 billion yuan (US$32.9 billion), beating the 6 per cent decline forecast by analysts polled by Bloomberg.

Its non-performing loan (NPL) ratio rose to 1.57 per cent last year, from 1.4 per cent in 2019. The net interest margin, a key gauge of banks’ profitability, was flat at 2.2 per cent from 2.23 per cent a year ago.

Bank of China, the nation’s oldest and largest international lender, posted a 2.9 per cent rise in net profit to 192.9 billion yuan from 187.4 billion yuan. The results beat the 8 per cent drop to 172.69 billion yuan estimated in a Bloomberg poll.

Its NPL rose to 1.46 per cent, from 1.37 per cent in 2019. Net interest margin was almost flat, at 1.85 per cent.

Its full year provision charge for bad loans came to 119 billion yuan, up about 16.5 per cent from a year ago.

The outlook for this year looks brighter, according to some analysts.

“We remain positive in the second and third quarter of 2021...we see a large chance for banks to achieve double-digit earnings growth in 2021 thanks to lower non-performing loan formation and improving net interest margins,” said Chen.

Last year, China’s banking sector disposed of some 3 trillion yuan worth of non-performing loans, higher than the 2 trillion yuan that they had disposed of in 2019. This had helped some of the Chinese banks to report lower NPL ratios, analysts said.

Newly formed NPL also eased among Chinese banks during the fourth quarter, from the peak seen in the second quarter of 2020, said Chen.

China set an economic growth target of “above 6 per cent” for 2021 as the country continues its strong rebound from the impact of the coronavirus pandemic last year, premier Li Keqiang announced in March during his delivery of the govenrment work report. The country’s GDP grew 2.3 per cent last year.

Separately, Bank of China Hong Kong, the second-biggest bank in the city in terms of customer deposits, reported that net profit dropped 17 per cent to HK$27.9 billion from HK$33.6 billion, missing the HK$28.1 billion consensus estimates polled by Bloomberg.

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