CHINA’S top five banks are seeing their slowest third-quarter profit growth in at least three years, as the sluggish economy forces lenders to set aside capital for more bad loans and successive interest rate cuts shave margins.

    Industrial and Commercial Bank of China Ltd. (ICBC) reported near-flat profit growth Friday, while Bank of Communications Co. (BoCom) reported a slight dip.

    China’s three other big banks — Bank of China Ltd. (BOC), Agricultural Bank of China Ltd. (AgBank) and China Construction Bank Corp. (CCB) — also saw near-flat profit growth in third-quarter results reported earlier this month.

    The People’s Bank of China has cut interest rates six times in less than a year, squeezing commercial banks’ net interest margin (NIM), or the difference between income from lending and the cost of funding. The central bank has also scrapped the ceiling on bank deposit rates.

    “The interest rate cuts, in conjunction with the rate liberalization will pressure the banks’ profitability because their deposits are usually repriced more slowly than loans,” Moody’s said in an October report.

    As China heads for its slowest economic growth in a quarter century, borrowers struggling with sluggish demand for their goods and services are finding it hard to repay loans.

    Consequently, banks are seeing nonperforming loans (NPL) rise and revaluing an increasing volume of impaired assets.

    ICBC’s NPL ratio was 1.44 percent at the end of September from 1.4 percent at the end of June, while BoCom’s ratio increased to 1.42 percent from 1.35 percent. CCB, AgBank and BoC also reported higher NPL ratios.

    All five of China’s largest commercial lenders reported a sharp increase in impairment losses on assets and are setting aside more capital. (SD-Agencies)