It might not sound like much of a landmark, but there was some fanfare this year when ICBC started trading above book value for the first time in years.
Looking at why helps us understand ICBC’s position in a changing China. The country’s financial services industry faces many threats, but most things that have happened in the last year or so have been to ICBC’s benefit.
First, there are China’s attempts to rein in the vast and alarming shadow banking industry. The state has raised short-term interest rates to curb the shadow sector; doing so has given an extra advantage to big banks like ICBC, which have enormous deposits – Rmb19.3 trillion ($2.9 trillion) on September 30 – compared with smaller banks that rely on interbank funding.
More importantly, bad debts appear to have peaked for the moment and are heading down. This is perhaps the single most important indicator for Chinese banks, given the perilously high levels of debt in the broader economy, particularly corporate debt.
Stated numbers show ICBC’s non-performing loan level drifting gradually lower, reaching 1.56% in the third quarter.