China’s Big 5 banks expected to boost lending with capital support

Fee income may also recover if new stimulus policies are effective, said CreditSights.

China’s Big 5 banks are expected to log a better performance in their net interest incomes (NII) on narrower margin contraction and robust loan growth.

The expected equity injection particularly in Bank of China (BOC), China Construction Bank (CCB) and Bank of Communications (BOCOM) by the Ministry of Finance will play a role in helping expand their lending books, said CreditSights, a Fitch Solutions service.

“The injection will come with increased loan growth expectations,” CreditSights said.

The banks’ fee income may also recover if new stimulus policies are effective and the capital market rebound is sustained, whilst other non-interest income might be lower at least in Q1 due to recent yield volatility.

Operating performances of the five banks— which include the Agricultural Bank of China (ABC), Industrial and Commercial Bank of China (ICBC), BOC, CCB, and BOCOM— showed a slight improvement in the second half of 2024. This enabled them to report small profit growths of about 0.5% to 4.7% year-on-year (YoY) for FY2024, CreditSights said.

However, net interest margins (NIM) fell by 18 to 19 basis points at the Big 4 banks, with BOCOM separately experiencing a 1bp drop.

It is generally expected that NIMs will continue to decline this year, but likely to a lesser extent than in FY24, CreditSights said.

Fee income also decreased by 3-14% YoY, impacted by fee reduction policies on bancassurance and equity funds, weak retail sentiment, and lower credit commitment fee rates.

Other non-interest income was a major profit driver in FY24, bolstered by higher trading and investment gains amid lower market yields, CreditSights said.

Gross loans grew by 8-10% YoY in FY2024, primarily led by corporate loans. However, the H2 2024 loan growth was softer at 1%-2% and was largely driven by discounted bills.