The dissonance gives rise to the perennial question about the believability of Chinese banks’ financial reports. The recent earnings improvement does look plausible. The central bank’s recent easing of liquidity conditions has been beneficial, particularly for small- and midsize banks that rely heavily on wholesale funding. Their operating profit before provisions rose by an average of 16.9% on year last quarter, according to Deutsche Bank, versus a 13% average rise for the country’s five biggest banks, which include the likes of Industrial & Commercial Bank of China. What exercises investors more is the true health of banks’ balance sheets. The long-held suspicion that they underreport bad loans is a reason most continue to trade below their book value. Skeptics won’t be comforted by the latest numbers showing a broad improvement in the ratio of nonperforming to total loans at the biggest banks, which are taking advantage of improved profits […]