ICBC Tackles Its Challenges

The sprawling Chinese bank faces a slowing domestic economy and new opportunities in international markets.

The business backdrop in China was profoundly challenging in 2016, as lenders learned to adapt to a lower baseline rate of economic growth and to steer towards the promise offered by igniting domestic demand in the world’s second-largest economy. ICBC, Global Finance’s Best Bank in the Asia-Pacific region, appears to have come away unscathed and revitalized by the experience.

In 2016, the gigantic Chinese bank focused on its principal businesses, defended the bottom line and maintained steady development in spite of substantial changes in both the internal and external environment.

This was very much the same story at ICBC’s big local competitors and the story of 2016 was very much one of profit erosion in the face of adapting to the “new normal.” Nevertheless, despite these challenges, the bank’s net profit for the year reached RMB279.1 billion ($40.6 billion), showing an increase of 0.5% compared to the previous year, while the ICBC’s net interest margin was down moderately—by 21bp—to 2.16%.

Interestingly, ICBC had long lagged its local competition in terms of overseas presence, but the bank decided in 2016 to address the issue in the quest for greater revenue diversification.

In April the bank launched an Asia Pacific business department to focus on cross-border financing with an aim to support the “One Belt One Road” initiative of president Xi Jinping, which aims to boost infrastructure along the old “Silk Road” that once linked China and the West in ancient trading days.

Some $23.5 billion of loans were granted by ICBC in 2016 in countries or regions along the Silk Road, an increase of 35.8% from the previous year.

ICBC’s domestic branches granted RMB3 trillion of loans in 2016, with new loans amounting to RMB844.6 billion and relending of recovered loans of RMB2.16 trillion. In terms of lending structure, RMB946.6 billion of project loans were granted, an increase of RMB129.8 billion from the previous year. This was mainly applied to key fields such as transportation, public facilities, functional upgrading of key cities, high-quality government-purchased services and advanced manufacturing.

In the cross border field, ICBC was the biggest arranger of syndicated loans in Asia (outside Australia and Japan) in 2016, according to data from Thomson Reuters. A key mandate was the $951 million awarded to ICBC as a sole arranger by HNA Group, a large and rapidly expanding Chinese conglomerate. Retail loans grew rapidly on ICBC’s balance sheet last year, with domestic residential mortgages rising by RMB717 billion, an increase of 28.8%.

Meanwhile, loans to small and micro enterprises also increased by RMB150.8 billion, growing faster than all other types of loans in the same period. In terms of geographical mix, large and medium-sized cities had a faster growth in loans, with first-tier cities and provincial capital cities in China contributing 69% of total new loans.

The bank is actively scaling back from sectors suffering from overcapacity and high leverage, but continues to enjoy a relatively competitive non-performing loan ratio of just 1.5%, below the Chinese commercial banking average of 1.67%.

Alongside these conventional lending activities, ICBC also used 2016 to upgrade the bank’s financial technology development, rolling out a “big data” and informatization strategy while consolidating technological innovation resources and launching nearly 1,000 projects to accelerate integrated innovation in technology and business.