China's four largest commercial banks reported year-over-year increases in net income for the first quarter of 2020, while facing decline in net interest margins, return on average equity and nonperforming loan ratios, on the back of the country's interest rate reforms.
Among the four lenders, China Construction Bank Corp. logged the highest year-over-year net income growth at 5.12% for the quarter, increasing to 80.86 billion yuan from 76.92 billion yuan, according to data compiled by S&P Global Market Intelligence. It was compared with 4.79% growth at Agricultural Bank of China Ltd., 3.17% at Bank of China Ltd. and 3.04% at Industrial & Commercial Bank of China Ltd.
Net interest margins continued to narrow from a year earlier as Chinese banks were facing downward pressure on interest rates.
The People's Bank of China has cut banks' reserve ratios 10 times since the beginning of 2018, with some of the recent reductions targeting smaller banks that have higher exposure to small and rural businesses. The central bank has also tried to push interbank lending rates lower by injecting liquidity through open market operations, such as lowering interest rates on reverse repos and medium-term lending facilities, on an irregular basis.
For the quarter, Industrial & Commercial Bank of China, the world's biggest listed bank by assets, recorded the largest drop in NIM among the four, slipping 11 basis points to 2.04% from 2.15% from a year earlier, and marking its fourth consecutive quarterly decline since the first quarter of 2019. Meanwhile, China Construction Bank's net interest margin fell 7 basis points, while Agricultural Bank of China and Bank of China logged 3 and 2-basis-point declines in NIM, respectively, over the same period.
In terms of asset quality, all four banks reported lower NPL ratios and ROAEs compared to the year-ago period.
Common equity Tier 1 ratios also shrank for most of the top Chinese lenders, except for Industrial & Commercial Bank of China, whose CET1 ratio had a 31-basis-point boost to 13.15% from 12.84% a year earlier.
As of May 7, US$1 was equivalent to 7.08 Chinese yuan.