FOUR of China’s five big banks have warned that profits will continue to be pressured in the second half of the year, as slowing growth in the world’s second-biggest economy hits borrowers and saps lenders’ margins.

    Chinese banks, among the world’s biggest by market value, also face rising volumes of sour debt, forcing a quicker pace of writeoffs — even as a series of rate cuts has chipped away at their interest income.

    Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), Agricultural Bank of China (AgBank) and Bank of Communications (BoCom) all warned of tough times ahead.

    BOC’s chief risk officer Pan Yuehan said the bank faces “relatively big pressure” in the near future, while ICBC’s chairman Yi Huiman said bad loans will continue to rise.

    ICBC, the biggest bank by assets, and BOC reported near flat half-year profits yesterday and shrinking net interest margins (NIM), the difference between interest earned on loans and that paid out to depositors.

    The lackluster first-half, a far cry from the banks’ strong double-digit profit growth two years ago, raises the prospect that the government will have to inject more than US$100 billion to shore them up, analysts have said.

    ICBC’s Yi said the four biggest banks — ICBC, BOC, AgBank and China Construction Bank (CCB) — and four leading asset management companies would be included in a government debt-to-equity pilot program, which aims to let industrial firms convert their debt into equity stakes.

    ICBC’s margins narrowed to 2.21 percent at end-June from 2.28 percent a quarter earlier, while those at BOC slipped to 1.9 percent from 1.97 percent.

    “Successive interest rate cuts and repricing of deposits and loans narrowed the interest spread,” ICBC said in a statement on its earnings.

    ICBC’s Yi said he expects the bank’s NIM to contract by 6-7 basis points in the second half, noting that each basis point drop costs more than 2 billion yuan in lost profit.

    Last week, AgBank, BoCom and CCB also reported lower interest margins.

    “One surprise is the NIM pressure. We hadn’t anticipated the banks would report net interest income declining in the second quarter, but a number of them did,” said Min Zhou, a banking analyst at AB Bernstein.

    China’s central bank cut interest rates last October for the sixth time in less than a year in a bid to jump-start growth in the stuttering economy.

    The squeeze on margins has also put pressure on banks’ capital strength, analysts said, with all the big five banks seeing their core capital slip, again raising the likelihood of a government bailout.

    While core capital — an indicator of a bank’s ability to take financial stress and remain solvent — at the five banks hovers between 10-13 percent, above a 10.5 percent minimum banks need to achieve by 2018, it has dipped from the previous quarter.

    Last week, AgBank’s chairman Zhou Mubing said good companies are not borrowing from banks, but issuing bonds or equity instead, while the bank’s vice president said profit growth in the second half would come under big pressure.

    BoCom president Peng Chun warned that soured debt had still not bottomed out and the downward cycle would likely persist.

    Nonperforming loan (NPL) ratios remained steady at the five big banks as they were quick to dispose of these.

    ICBC wrote off 44.8 billion yuan (US$6.71 billion) in soured debt in the first half alone, compared with 60.2 billion yuan in the whole of last year. BOC disposed of 29.2 billion yuan in the January-June period, compared with 45.2 billion yuan in all of 2015. (SD-Agencies)