<ul>
<li>China’s big banks post between 3.1% and 4.52% Q1 net profit growth</li>
<li>NPL ratios remain steady</li>
<li>Analysts warn of divergent bank health</li>
</ul>
By Ziyi Tang and Engen Tham
BEIJING/SHANGHAI, April 29 (Reuters) - Five of China’s largest lenders reported net profit growth over 3% in the first quarter of this year on Wednesday, as bad debt ratios remained steady.
Industrial and Commercial Bank of China (601398.SS) (1398.HK) , the world’s largest lender by assets, reported a 3.31% rise in first-quarter net profit year-on-year, hitting 86.941 billion yuan ($12.72 billion).
Over the same period, Bank of Communications (601328.SS) (3328.HK) reported a 3.1% rise in net profit, while China Construction Bank (601939.SS) (0939.HK) netted a 3.53% increase.
Agricultural Bank of China (1288.HK) (601288.SS) and Bank of China (601988.SS) (3988.HK) , meanwhile, posted first-quarter increases of 4.52% and 4.17% respectively.
<h3>BAD LOANS UP, BUT NPL RATIOS UNCHANGED</h3>
Despite rising bad loans from developers and consumers due to a years-long slowdown in China’s property market, the banks reported steady non-performing loan ratios.
ICBC and CCB reported steady NPL ratios at the end of the first quarter from the end of last year, while BoC and AgBank’s dipped slightly. BoCom reported a slight uptick to 1.30% from 1.28% over the same three-month period.
“Chinese state banks are better placed to withstand continued pressure on profitability from low margins and weaker asset quality in unsecured consumer lending,” said Elaine Xu, Director, Asia-Pacific Financial Institution, Fitch Ratings.
“This reflects their large, stable franchises and customer bases, as well as more disciplined underwriting standards. Their exposure to riskier sectors, such as property development, is manageable,” Xu added.
However, analysts warned that there would be greater divergence between the health of large state lenders and their smaller peers.
Retail lenders, mainly joint-stock banks “suffer from muted retail loan growth on the back of ongoing household deleverage and lingering retail asset quality pressure,” said a Citi note.
Broadly, analysts said the immediate impact of the Iran war on large Chinese lenders is negligible, but asset quality could be hit if energy prices remain high in the longer term.
Chinese banks “have little direct exposure to the Middle East,” said Ming Tan, a director at S&amp;P Global Ratings.
“If the war worsens, it could have second-order impacts on asset quality. Chinese megabanks have above-average exposure to sectors such as transportation, utilities, and manufacturing. These sectors are hit harder by higher energy prices,” Tan added.
Net interest margins - a key gauge of profitability - ticked up slightly for three of the lenders, though slipped for AgBank from 1.28% at the end of last year to 1.26% at the end of March.
BoC’s NIM remained flat across the period.
China’s big state banks expect interest margin pressure to ease this year, helped by a repricing of $8 trillion of maturing high-priced time deposits, while flagging an uncertain external environment as a challenge.
The impact of first-quarter loan repricing on banks’ lending yields has remained manageable as China has left benchmark loan prime rates unchanged after a cut in May last year. ($1 = 6.8342 Chinese yuan renminbi)

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WRAPUP 1-China's largest lenders' first-quarter profit up over 3%, sour loan ratios steady