CBRC: 1H17Commercial Bank Profit Grew by 7.9% YoY (CBRC, Aug 14)    The CBRC released 2Q17operating data for China’s all commercial banks, withquarterly net profit of Rmb477bn, up 11.6% yoy (vs. 1Q17: 4.6%). 1H17sectorprofit grew by 7.9% yoy. The earnings recovery was driven by moderating NPLformation, lower credit cost and mild NIM expansion. Big banks saw betteroperational trends and joint-stock banks (JSBs) slowed asset growth notablyand reported further NIM contraction. We highlight key trends below:    NIM for the entire banking sector was up 2bps qoq to 2.05% (1Q17down19bps). Specifically, big five banks’ NIM was up 3bps qoq, while JSBs &city commercial banks’ NIM both down 2bps qoq.We estimate the annualized NPL formation to be 85bps in 2Q17, higherthan 49bps in 1Q17but still lower than 126bps in 2016. As a result, banksonly set aside credit cost of 92bps, similar to 89bps in 1Q17and muchlower than 136bps in 2Q16. Sector NPL ratio was flattish qoq at 1.74%.Big five banks saw NPL ratio dropped by another 4bps qoq to 1.60%, whilerural financial institutions saw rising NPL ratio (up 26bps qoq to 2.81%).Sector NPL coverage ratio down 1.6ppt qoq to 177.2%.China’s domestic banking assets amounted to Rmb236.5tr as of June 2017,up 11.4% yoy (vs. 16.5% in 2016). Total banking asset growth slowed from16.5% yoy in 2016, which was mainly dragged down by slower growth ofsmaller banks, especially JSBs. Total assets of joint-stock and city/ruralbanks (44% of total banking assets) slowed notably to 12% yoy in end-June from 19% in 2016(JSBs down to 8.4% from 17.2% in 2016). Incontrast, the Big Five banks (36% of total banking assets) are growing theirasset base modestly faster at 8.8% yoy vs. 6.9% in 1H16.On capital, sector CET-1down 15bps qoq to 10.64% in 2Q17. Liquiditycoverage ratio improved to 123% (vs. 119% in 1Q17).

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