Several indicators released in the past weeks appear to show that China’s efforts to contain financial risks have made some progress.
The proportion of bad loans for all Chinese banks was 1.99 percent at the end of May, down 0.16 percentage points from the same period last year, Reuters reported. China’s National Bureau of Statistics also reported that state-owned enterprises recorded profit growth of 24.3 percent in the first half of 2017, which should improve banks’ asset quality and lending profitability, Deutsche Bank analysts wrote in a note.
On Monday, Moody’s Investors Service said progress by the Chinese authorities to rein in credit growth and enhance oversight of shadow banking is encouraging. The ratings agency last month said it no longer held a “negative” view on China’s banking system as risks appeared to have eased.
Over the last two years, many Chinese banks have struggled to record even 1 percent growth in profits due to soaring bad debt and loan defaults. Now, the banks’ fortunes, especially those of the big five, may improve in 2017, some analysts said.
“I think there’s probably some upward bias to earnings this year. For the big banks at least, I think margins should improve, loan growth is better and provisions should come down,” Matthew Phan, senior analyst at CreditSights, told CNBC.
Still, he added, he was concerned that “the asset quality recovery will be short and shallow.”
“The property market looks like it could slow, and this will lead the entire economy down, leading to fresh concerns about bank [non-performing loans]. Though I think that’s a 2018 question, not a 2017 question.”
—CNBC’s Leslie Shaffer contributed to this report.