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Chinese banks' profits up, but issues abound

According to The Wall Street Journal, data from China’s largest banks marked a tentative turnaround in 2016, but also highlighted how pressure on lending rates is eroding the outsize role of interest in banks’ income. For the first time since at least the 2008 global financial crisis, major lenders earned less in 2016 from interest payments than a year earlier, spurring them toward riskier investments in search of yield. ICBC profit edged up 0.4% last year to 278.2 billion yuan ($40.4 billion), largely unchanged from 2015. China Construction Bank’s growth reached 1.5% in 2016, compared with 0.1% growth for 2015. Agricultural Bank of China said profit was up 1.8%, from 0.6% in 2015. But improved profits belie difficulties for banks. Lenders are vulnerable to the People’s Bank of China’s campaign this year to restrain money-market liquidity, pushing up banks’ cost of funding. The corporate sector is mired in high debt, and capital controls limit overseas expansion.

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