BoC reports 3.3% profit increase 

Bank of China Ltd. has reported a 3.3% increase in its third-quarter profits, despite narrowing margins. The net profit for the bank rose to 54.8 billion yuan ($7.5 billion) from 53.02 billion yuan in the previous year. However, the bank’s net interest margin decreased from 1.77% to 1.64% over the same period.

This report comes following a mixed set of earnings results from China’s largest state-owned banks. Industrial & Commercial Bank of China Ltd. reported little change in its three-month profit compared to the previous year, while Bank of Communications Co. experienced a nearly 3% drop. China Construction Bank Corp. and Agricultural Bank of China Ltd. managed to offset a margin decline with lower credit impairments.

China’s banking industry, valued at $56 trillion, has been dealing with shrinking margins and increasing bad loans, primarily as part of efforts to support the economy and mitigate risks arising from the property sector’s slowdown. This year, they have faced additional challenges, including the need to prevent a credit crunch in the $9 trillion local government debt market, which has put further pressure on their profits and asset quality due to loan rollovers and debt extensions at lower rates.

Combined profits at China’s commercial banks increased by 1.6% compared to the previous year in the first three quarters of the year, as reported by the National Administration of Financial Regulation. The non-performing loan ratio at these banks dropped slightly to 1.61% by the end of September.

Net interest margins at China’s banks reached a record low of 1.74% by the end of June, which is below the industry’s widely regarded threshold of 1.8% necessary for maintaining reasonable profitability.

Bank of China also saw a decrease in its non-performing loan ratio, which shrank to 1.27% from 1.32%. In response to margin pressures, Chinese banks have reduced deposit rates three times since the previous September, but experts suggest that this may not be enough to reverse the net interest margin downtrend. A prolonged squeeze on margins could continue to impact earnings, limiting growth to low single digits at best in the coming years.