Chinese Banks Struggle with Single Digit Profit Rate

Published Date : Apr 07, 2015

Due to a slowdown in China’s economy, the state-owned Chinese banks are witnessing the slowest growth rate in their profits in the recent years. Some of these banks, backed by the Chinese government, had attained top positions in the global banking network in the past.

According to the Money Weekly report, last year, the profit rate dropped down to single digits for the top five banks in China. Agricultural Bank of China (ABC), which had expanded 14.52 percent in 2013, achieved net profit of only 8 percent. One of the world’s largest banks, the Industrial and Commercial Bank of China (ICBC) realized a massive cut in the profit rate, achieving 5.07 percent last year, which is only half of what it had attained in 2013. China Construction Bank, another globally ranked Chinese bank, registered a profit rate of 6.1 percent compared to 11.11 percent profit rate in 2013. Profits of Bank of China and Bank of Communications also reflected the same story. 

The combined net profits of the top five Chinese banks accumulated to 927.09 billion yuan (US$151.24 billion) in 2014, which is almost 60 percent of the net profits of the entire Chinese banking industry. 

One of the key reasons for the decreased profit rates can be attributed to the rise in the non-performing loans (NPL). All of the five banks registered more than one percent of bad loans. With the Chinese Economy registering slowest growth in 24 years, some local governments and companies struggled with debt problems which increased the NPL ratio of the banking industry by 1.64 percent in the last year. Reducing the number of bad loans will be a key target for the banking industry in China in 2015.