Bad-loan concerns at China's big banks eased in 2016 despite flat earnings growth, the companies said this week, but analysts warn asset-quality problems in the world's second-largest economy could worsen next year.
Bank of China, the country's main foreign exchange bank, said Friday its non-performing loans (NPL) came in at 1.46 percent of total lending, up only slightly from 1.43 percent a year earlier.
"Stepping up efforts to clear out and eliminate NPLs, we made substantial progress in a number of key projects, eliminating more NPLs than ever before," Bank of China chairman Tian Guoli said in an earnings statement filed with the Hong Kong stock exchange, where it lists shares.
The Industrial and Commercial Bank of China (ICBC), the world’s biggest lender in terms of total assets, said late Thursday its NPL ratio rose to 1.62 percent by the end of 2016, up from 1.50 percent but marking a much slower rate of increase than previously.
ICBC chairman Yi Huiman called the results "better than expected" in light of global economic uncertainties and slowing growth in China.
China’s economy, a vital engine of global growth, expanded 6.7 percent for all of last year, the slowest rate in a quarter of a century. But a slight uptick in the last three months of 2016 provided signs of stabilisation.
The country’s second biggest lender, China Construction Bank, said its NPL ratio decreased slightly to 1.52 percent of all loans while Agricultural Bank of China's edged down to 2.37 percent.
The improving asset quality reflected the stabilising economy, Larry Hu, head of China economics at Macquarie Securities in Hong Kong, told Bloomberg News.
But he also warned "the rebound is probably peaking and we will likely see a worse picture in asset quality a year from now."
China is trying to pivot from hyper-fast growth based on investment and exports towards a steadier consumer-driven model.
But the transition is complicated by the slowing growth, a slumping currency, and fears of a housing bubble and bad-loan crisis.
The Communist Party leadership repeatedly warned of risks such as a possible bad-loan crisis during the 10-day session of China's rubber-stamp legislature earlier this month, vowing stringent measures to keep the financial system stable.
The big banks reported surging residential mortgage loans and slightly higher net profits.
ICBC's 2016 net profit ticked 0.40 percent higher to 278.25 billion yuan ($40.33 billion), the company said.
China Construction Bank's earnings rose 1.45 percent to 231.46 billion yuan in 2016 while Agricultural Bank of China's grew 1.86 percent to 184.0 billion yuan, according to their earnings report filed this week.
Bank of China, however, said its profit slipped 3.7 percent to 164.58 billion yuan.