BOFIT Viikkokatsaus / BOFIT Weekly Review 2018/38

The semi-annual financial reporting of China’s Big Four banks (Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China) shows all increased their margins and profits during the January-June period. Most of the earnings growth came from a widening spread between lending and deposit rates. The situation has improved for these banks since 2015 and 2016, when the tough competitive environment dramatically shrank margins. Other profitability indicators like various return on capital ratios also suggest higher bank profitability. The Big Four appear to have benefitted from recent campaigns by the country’s leadership on lowering debt levels and tighter regulation. Concerns about banking system stability are primarily focused on small and mid-sized banks.

There has long been a cloud surrounding the reliability of economic reports published by Chinese banks. The solidity of Chinese banks, which are famously reluctant to for example report non-performing loans, is generally seen as weaker than represented. During the past few years, Big Four financial reports increasingly portray themselves as enthusiastic participants in the government’s economic development campaigns and initiatives.

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