The annual reports of the six major state-owned banks have all been released: ICBC is the largest in scale, and Agricultural Bank of China has the fastest net profit growth rate

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On the evening of March 28, the 2023 annual reports of the six major state-owned banks have all been announced.

According to the data, in 2023, the total operating income of the six major banks (industry, construction, agriculture, China, postal savings, and communications) will be 3.53 trillion yuan, and the net profit will be 1.38 trillion yuan, with an average daily income of nearly 3.8 billion yuan.

In terms of dividends, the overall dividend rate of the six major banks is more than 30%, and the total amount of dividends proposed by ICBC and CCB is more than 100 billion.

In 2023, the central bank will cut the policy interest rate twice, and commercial banks will reduce the interest rate on the first home loan, and the banking industry as a whole will face the problems of weak net profit growth, declining net interest margin, and increasing pressure on non-performing assets.

Against this backdrop, it is not easy for the state-owned banks to hand over this report card.

The net profit of the six major banks is positive, and the Agricultural Bank of China has the fastest growth rate

From the perspective of operating income, the six major banks fell twice and rose four. The good news is that the net profit of the six major banks is positive.

In terms of revenue, ICBC, the "universe line", still ranked first in the list, reaching 843.07 billion yuan, a year-on-year decrease of 3.73%, and its operating income declined for two consecutive years. It is worth mentioning that the revenue of Bank of China exceeded 600 billion yuan, a year-on-year increase of 6.41%, and the growth rate was the first among the six major banks.

In terms of net profit, the six major banks will all achieve positive growth in 2023. ICBC and CCB both exceeded 300 billion yuan, and Agricultural Bank of China grew the fastest, up 3.9% year-on-year. The net profit of Bank of Communications and Postal Savings Bank is moving towards 100 billion yuan.

Image source: Wind Financial Terminal

Net interest margins continued to decline, and the six major banks came under pressure

In fact, the continued narrowing of net interest margins has been a common challenge faced by the banking industry in recent years.

According to data from the State Administration of Financial Regulation, the net interest margin of commercial banks has gradually declined in the past two years, from 2.08% at the end of 2021 to 1.69% at the end of 2023. Among them, the net interest margin of state-owned banks has decreased from 2.04% at the end of 2021 to 1.62% at the end of 2023.

In 2023, the reduction of the LPR will lead to a downward trend in lending rates, which will put some pressure on the net interest margin of the banking industry. According to the data, the net interest margins of the six major banks have all declined to a certain extent, with an average range of nearly 25-30 basis points.

Image source: Wind Financial Terminal

The decline in net interest margin also caused a significant dive in the stock market banking sector. On March 28, Bank of Communications plunged 2.8%, Agricultural Bank of China fell 2.57%, Bank of China fell 2.45%, and Industrial and Commercial Bank of China fell 2.05%.

Gu Shu, chairman of the Agricultural Bank of China, pointed out at the results conference that banks should stabilize interest margins from both assets and liabilities. Last year, the interest rate of ABC's loans was lower than that of the previous year, which was basically in line with the industry trend and comparable banks, which was the result of taking the initiative to make profits to the real economy; while on the liability side, at the end of last year, ABC had the largest increase in customer deposits among peers, and the interest payment rate of RMB customer deposits was 1.71%, maintaining the best level among comparable peers.

"In addition to looking at the deposit and loan interest rates, the net interest margin analysis should also look at the tax exemption effect of investment varieties. The Agricultural Bank of China invested a large amount of treasury bonds last year, and the interest rate, although lower, was very safe, reducing income tax expenses. Gu Shu pointed out.

With the continuous decline of LPR, the downward trend of interest margin has become unavoidable, and in the long run, it is urgent to gradually get rid of the strong dependence on interest margin income and increase the proportion of non-interest margin or intermediate income. From the perspective of liabilities, measures such as capping large certificates of deposit and reducing fixed structured deposits have also had a certain effect.

Asset quality improved and NPL rates decreased

In 2023, the asset quality of the six major state-owned banks will be stable and improving. The non-performing loan ratio is declining.

As of the end of 2023, the non-performing loan ratios of Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank were 1.36%, 1.33%, 1.27%, 1.37%, 1.33%, and 0.83%, respectively, down 0.02, 0.04, 0.05, 0.01, 0.02, and 0.01 percentage points from the end of 2022.

In terms of provision coverage ratio, as of the end of 2023, the provision coverage ratios of Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and Bank of Communications were 213.97%, 303.87%, 191.66% and 195.21% respectively, an increase of 4.5, 1.27, 2.93 and 14.53 percentage points respectively from the end of 2022. In addition, the provision coverage ratio of CCB was 239.85%, down 1.68 percentage points from the end of 2022, and the provision coverage ratio of PSBC was 347.57%, down 37.94 percentage points from the end of 2022.

Zhang Xuguang, vice president of the Agricultural Bank of China, said at the results conference that risk prevention and control is the eternal theme of financial work, and asset quality is also the lifeline of commercial banks.

Image source: Wind Financial Terminal

Fintech could be the next growth point

The downward trend of net interest margin is unavoidable for the time being, and the banking industry is also actively looking for a way to break the situation and accelerate the transformation to digital, intelligent and online.

In various annual reports and performance conferences, "financial technology" and "digital transformation" are frequently mentioned, and financial technology is expected to become a new growth point for the banking industry.

Liao Lin, chairman of ICBC Bank, pointed out that taking the initiative to change can better adapt to the environment and respond to the market environment with low interest margins. According to the bank's annual report, it adheres to the principle of "technology-driven and value creation", and accelerates the construction of science and technology enforcement and digital ICBC. The AI large model construction achievement was awarded the first place in the "10 Major Events of Financial Informatization in 2023" by the People's Bank of China's "Financial Electronics", and it is the only large model technology innovation and application selected in the banking industry.

According to CCB's annual report, the bank has continued to consolidate its fintech and data capabilities through continuous innovation and exploration in the field of digital finance, with digital transformation as the core and data-driven as the support, focusing on building a new financial digital infrastructure. CCB leverages its advantages in product innovation and financial technology to actively build a full-scenario smart life financial ecosystem, covering various fields such as housing, transportation, convenience services, public welfare services, living expenses, and school education.

Gu Shu, chairman of the Agricultural Bank of China, pointed out that technology will change the future of banks. ABC will coordinate its current operations and future development, and it is particularly important to increase investment in science and technology, actively promote digital transformation, and build solid scientific and technological support for future development. ABC will promote the comprehensive transformation of its core business systems into a distributed architecture, improve the scale capacity and computing power of data centers, and continue to build a data-driven business model.

On March 28, the China Bankers Survey Report (2023) jointly released by the China Banking Association and PricewaterhouseCoopers showed that bankers are generally optimistic about investment in the fintech sector.

Fintech, as the core driving force of digital transformation, is expected to lead the revolutionary transformation of the fintech field and redefine the value of the entire industry with the help of big data, artificial intelligence, blockchain and other technologies, especially the rise of AI large model technology.

Under the tuyere of financial technology, can the six major banks break through the predicament? It remains to be seen who will be in charge in the future. (This article was first published on the Titanium Media APP, author | Yan Fanyao, editor - Liu Yangxue)