Chinese banks' profit to grow 4% to US$98.7b in the first half of 2017

Guess which bank will have the strongest profit growth.

Though the 4% profit growth to Rmb671b (US$98.7b) is still slower than B/S expansion (loans, deposits, and assets are expected to rise 12%/10%/9% YoY, respectively), analysts at Jefferies say sector earnings growth is clearly recovering due to stabilising NIM and credit cost (2016 sector profit growth 1.3%; 1Q17 sector profit growth 2.3%).

"We estimate 2Q sector profit to be Rmb336b (US$49.4b), flat QoQ but up 6% YoY."

Here's more from Jefferies:

China banks will report interim results from mid-August. We expect 1H sector profit to be Rmb671bn (1Q and 2Q split: 335bn/336bn), considering that both margin and asset quality are stabilising. Among banks, we expect PSBC/CMB to have the strongest profit growth; while BCOM/CITIC report some profit decline.

On a sequential basis, we estimate 2Q profit to be Rmb336bn, flat QoQ. This implies 6% y/y growth rate, the highest since 2015. In other words, China banks' earnings growth is gradually recovering given 1) credit cost stabilises at c110bp level; 2) NIM stays at around 2.0%.

During the result season, we believe investors should pay attention to 1) the diverging margin trends among banks; and 2) the B/S growth differential as some small banks are likely to further reduce the scale of interbank business.

Among China banks, we continue to favor CMB/CCB/ICBC the most for their strong funding franchise, high ROE and robust capital position. We also highlight interim result season may act as a positive catalyst for PSBC given low share price and strong earnings growth.