China's banking industry is one sector bearing the brunt of the country's economic slowdown, which has resulted in profits at major lenders slowing and the bad loan ratio climbing.
In the first three quarters, China's big four state-owned banks all reported profit growth below 1 percent, with that of Bank of China (BOC), the Industrial and Commercial Bank of China (ICBC), Agriculture Bank of China (ABC), and China Construction Bank (CCB) at 0.79 percent, 0.65 percent, 0.57 percent and 0.73 percent, respectively.
Profits at mid-sized lenders such as China Everbright Bank and Citic Bank, also reported slower expansion. Their profits were mainly driven by net-interest income, or revenue from borrowers minus interest paid to depositors.
However, as the gap is set to narrow with China's interest rate liberalization, banks must seek fresh business models for future profit growth. In the meantime, bad loans have continued to increase due the economic headwinds. The bad loan ratio at ABC came in at 2.02 percent as of the end of September, while that of the other three lenders was around 1.45 percent.
Zhao Xijun, deputy director of the finance and securities institute at Renmin University of China, said it is possible that their non-performing ratio will continue to rise through year end, but will remain within a controllable range.
The data came as China's economy expanded 6.9 percent year on year in the third quarter of 2015, the lowest reading since the second quarter of 2009.
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