China’s top four banks posted better-than-expected quarterly profits this week, even as their stock market valuations remain the lowest in Asia, highlighting how pessimism about slowing Chinese economic growth is overshadowing resilient profitability in the sector.
After years of break-neck gains, profit growth at Chinese banks is expected to slow sharply this year as new loan growth moderates and profit margins get squeezed by policy reforms allowing banks to offer higher rates on customer deposits.
This, along with concerns about a rise in non-performing loans as the slowing economy and rising indebtedness pressure borrowers, have driven China bank share prices down hard this year. Chinese banks are trading at rock-bottom valuations despite reporting profits that would still be the envy of lenders in other markets.
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