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Nikkei Markets

ICBC vows credit support to China factories amid trade war

ICBC and China Construction Bank downplay impact from PBOC's rate reform

HONG KONG (Nikkei Markets) -- Industrial & Commercial Bank of China on Thursday said it will step up credit support to local manufacturers to help cushion the impact from uncertainties related to the Sino-American trade dispute.

The lender, the country's largest with assets totaling 29.99 trillion yuan ($4.2 trillion) as of June 30, pledged to "resolutely implement all major policies and plans made by the state" and advance reform and innovation while "forestalling and defusing" various risks. President Gu Shu said the bank saw uncertainty looming in the second half of the year from a host of factors, including an escalating trade war.

"We will provide more financial support to the manufacturing sector to help them upgrade and transform," Gu told reporters at a briefing in Hong Kong. "We will provide financing to projects related to national strategy and financing," and ensure more financing to small- and medium-enterprises, he added.

The remarks come at a time when the 18-month old trade war threatens to escalate further as the U.S. and China prepare to impose higher tariffs on goods they import from each other. With manufacturing supply chains facing the risk of upheaval, Beijing has been pursuing policies to boost consumer demand and help local companies gain a technological edge.

Gu was addressing the media after ICBC announced its first-half results. The lender's net profit for the half year ended June climbed 4.7% to 167.93 billion yuan, and net interest income increased 7.8% to 299.30 billion yuan. Net interest margin contracted one basis point to 2.29% while its non-performing loan ratio decreased by 4 basis points to 1.48%, a 10th consecutive quarter of improvement, according to the lender.

The bank's corporate loan book stood at 9.91 trillion yuan as of June 30, up from 9.42 trillion yuan a year earlier.

Gu said overall loans were expected to grow "moderately" in 2019 amid what the bank described as a "complicated economic landscape" in the July-to-December period.

Established in 1984, Beijing-based ICBC had raised $21.9 billion in 2006 from a then-record initial public offering in Hong Kong and Shanghai.

Leaders in the world's second-largest economy have over the past few quarters urged the nation's banks to boost lending to private enterprises, a segment that many say was neglected in the past while state-owned enterprises enjoyed freer access to cheap credit. The calls came amid a broader slowdown in the economy after decades of rapid expansion.

Executives at ICBC as well as at its smaller peer China Construction Bank on Thursday downplayed the impact from changes in the interest rate mechanism in the mainland.

The People's Bank of China earlier this month said commercial lenders should use the loan prime rate (LPR) as a major lending rate reference when issuing loans, a move that is meant to give market forces greater say in determining borrowing costs in the country. Under a revised mechanism, the rate will be based on quotations from 18 banks, including two foreign lenders. The LPR will be effective from Oct. 8.

Gu said the impact on ICBC's net interest rate margins will be "limited" as the bank has been applying LPR to loans since the mechanism was first introduced in 2013. While competition for deposits was growing,

applying upward pressure on deposit rates, the bank would use its extensive network to garner more deposits, he said.

"We will expand our customer base to acquire low-cost sources of financing and deposits, instead of suppressing interest payments to customers," Gu said.

His remarks echoed comments made by executives at CCB.

"Our interest income will be reduced by less than 100 million yuan in 2019" because of the LPR, although the scale could be larger in 2020, Xu Yiming, chief financial officer at CCB, told reporters on Thursday.

CCB, the nation's largest lender by market value after ICBC, on Wednesday reported a 5% increase in first half net profit to 154.19 billion yuan, while its net interest income improved 4.6% to 250.4 billion yuan.

CCB, however, was more cautious in its outlook. The bank had on Wednesday also warned of the risk that banks' asset quality could come under pressure as certain enterprises find it difficult to remain profitable against the backdrop of slowing economy. The U.S.-China trade spat will hurt the development of certain industries and raise uncertainties in China's economic performance, the lender said.

Loan growth in the second half of 2019 could be slower than the 5.4% increase it recorded in loans and advances to customers in the first half, CCB's Xu said on Thursday.

The Hong Kong-listed shares of ICBC ended unchanged at HK$4.89 on Thursday ahead of its results announcement. CCB's shares declined 0.5% following its earnings the previous day, while the city's benchmark Hang Seng Index added 0.3%.

-- Benny Kung & Lopamudra Bhattacharya

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