Two themes that were evident in most Chinese banks' Q2 results

The banks registered NIM expansion of 4-8bp.

The two consistent themes running through most of the Chinese banks’ results, according to UOB Kay Hian are: a) NIMs expanded by 4-8bp qoq, and b) ICBC, BOC and ABC achieved twin reduction in SMLs and overdue loans.

"The Big-4 banks grew their corporate loans by 2% qoq and retail loans by 4-5% qoq. Growth in corporate loans was driven mainly by infrastructure projects. For retail loans, growth centred on residential mortgage and credit card overdraft. China Construction Bank (CCB) also reported a doubling of consumption loans on a hoh basis. Many banks reduced low-margin discounted bills to create room for expansion in corporate and retail loans," noted UOB Kay Hian analyst Jonathan Koh.

Here's more UOB Kay Hian:

NIM expansion testimony of Big-4’s deposit franchise. The Big-4 banks expanded their total deposits by 6-7% hoh in 1H17 despite the tightening of liquidity. The strength of the Big-4’s deposit franchises enabled them to register NIM expansion of 4-8bp qoq. Bank of China (BOC) benefitted from a higher NIM from its overseas markets.

Contraction in fee income. Most banks registered a contraction in fees due to a drop in agency commissions and contribution from wealth management. CCB was able to hold fees steady due to growth from its own wealth management services, bank cards and electronic banking. BOC grew fees by 6% yoy due to a recovery in trade (settlement & clearing) and stability of the renminbi (spread income from FX).

Twin reduction of SMLs and overdue loans. Industrial & Commercial Bank of China (ICBC), BOC and Agricultural Bank of China (ABC) achieved twin reduction in SMLs and overdue loans.

The reduction at ICBC was significant, at 7.3% hoh for special mention loans and 10.8% hoh for overdue loans. The Big-4 banks increased their provisions by 10-40% yoy with the exception being BOC whose provisions dropped 86% yoy to cushion the high base effect of gains from the divestment of Nanyang Commercial Bank which was recognised in 2Q16. China Merchants Bank (CMB), ABC and ICBC reported sizeable gains in loan loss coverage of 16ppt, 8.2ppt and 4.3ppt qoq.