RETAIL BANKING | Staff Reporter, China

Chinese banks' profit growth to hit double digits in 2018

It’s back to black after four years of stagnant earnings.

Market and banks should feel confident about a double-digit earnings growth in 2018 for large Chinese banks after six years, Credit Suisse reports. These banks are at an advantage with smaller shadow banking and leverage activities, as well as superior capital and deposit franchise.

Here's more from Credit Suisse:

We are also hearing about banks being able to widen credit spreads, so margins can expand more than street expectations. And if corporate cash flows continue a strong trajectory, alongside stabilising new NPL formation, banks should feel confident about trimming credit costs modestly. That takes us to a 13% profit growth for the four large banks vis-à-vis 5% by the street. We suspect the bigger source of variance between consensus and our forecasts might be margins, not credit costs.

After four years of stagnant earnings, we believe the large banks should surprise on the upside in 2018 by delivering double digit growth, with margins expanding more than generally anticipated.

Strategist Vincent Chan believes that among the big sectors, there is still some earnings upgrade potential for banks, given that the market consensus earnings growth is still rather subdued. Basically, it is fair to say that their operating environment has improved with the pick-up in nominal GDP growth for China, but it is not entirely reflected in earnings improvement of the whole sector. If the economic conditions stay favourable, we believe that the earnings’ of banks stand a good chance of further improvement in the next few quarters.

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