Chinese banks lost billions in profits due to problem loans
Coronavirus pandemic has extremely negative impact on the state of the Chinese banking system.
The five largest banks in China reported the most significant declines in profits in at least a decade. Credit Institutions Prepare for Further Growth of Problem Loans in Economy Weakened by Coronavirus Pandemic.
Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications released their latest financial statements last week.
All five banks saw profit declines of at least 10% year on year in the first half of 2020 as they reserve more funds for possible loan losses in the coming months – as do many banks around the world..
«Banks were asked to … “nationwide services”. They were asked to support the economy with their own operational capabilities.», – reported Jason Tan, CreditSights analyst, in an interview with CNBC.
Chinese banks, some of the world’s largest in terms of assets, have been at the forefront of the Chinese government’s efforts to cushion the economic blow to households and businesses. Authorities in Beijing have reportedly asked financial institutions to donate 1.5 trillion yuan ($ 219 billion) in profits this year to help companies by lowering loan rates and delaying loan repayments..
The International Monetary Fund predicts China’s economy – the world’s second largest – will grow by just 1% this year as measures to contain the coronavirus pandemic negatively impact global economic activity. This will be China’s weakest growth in 40 years, according to the fund..
China, the first country to be hit by the rapidly spreading coronavirus, has already shown some signs of economic recovery, Tang said..
«The main brunt of the pressure on asset quality may not yet be overcome due to the still existing moratorium on loan repayments as well as interest payments», – he explained.
«So the situation is likely to change in the second half, if not the first half of 2021, when the moratorium is lifted in March 2021.», – he added.
Morgan Stanley’s analysis of the latest P&L reports from Chinese banks showed that midsize lending institutions perform better than their larger counterparts in terms of operating profit, apart from provisions for future bad debts. Morgan Stanley analysts noted in their Sunday report that pre-provisioning operating profit for most midsize Chinese banks rose 8–27% over last year. They added that this is better than the seven largest banks, which ranged from a 2% decline to a 6% growth..
However, Jefferies analysts noted that Chinese banks «very likely» will cut dividends this year after creating additional reserves. But since bank profits are likely to recover from bottoming out in the second half of this year, dividends could return in 2021, experts say..
Chinese bank stocks fell heavily in 2020. The FTSE China A 600 Banks Index, which tracks large and mid-cap banks listed on mainland China exchanges, is down about 8.9% this year, according to Refinitiv..
In contrast, the broader FTSE China A 600 Index rose 17.9% over the same period, Refinitiv data shows..
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