Chinese banks will continue to experience profitability and asset quality pressures this year, analysts said on Wednesday.
Their comments came in response to two of the country's Big Five lenders－Bank of Communications and Agricultural Bank of China－posting flat annual profit growth, amid higher operating pressure and narrowing interest margins.
The remaining three lenders of the group－Industrial and Commercial Bank of China, Bank of China and China Construction Bank－are all scheduled to release their annual reports this week.
Bank of Communications and Agricultural Bank on Tuesday reported a 1.03 percent and 1.86 percent rise in net profits last year, respectively, driven by loan growth and lower tax burdens.
Analysts said the flat profit gain of the two banks confirmed that the country's commercial banks are experiencing a slowing trend in net profit growth. They have been battling narrowing net interest margins, resulting from a string of benchmark interest rate cuts by the central bank in 2014 and 2015.
She Minhua, a banking analyst at Zhong De Securities Co, said that pressure from banks' narrowed interest margins will remain, as their funding costs have been rising while the monetary authority is unlikely to raise interest rates any time soon.
“Some people expect the Chinese central bank to raise the rates following the (United States) Fed's hikes. But it is still uncertain whether the economic recovery in China can afford a rate hike now,” he said.
Peng Chun, president of Bank of Communications, China's fifth-largest listed commercial bank by assets, said at a briefing in Hong Kong that the bank is likely to see a rise in nonperforming loans this year and that asset quality will remain under pressure.
But some analysts said that the banks' asset quality is likely to improve this year as industrial profitability has been recovering, helped by rising commodities prices and structural reforms cutting excess capacity.