OVERVIEW-Chinese banks to post first drop in first-half profits in more than a decade amid pandemic
BEIJING / HONG KONG, Aug. 24 (Reuters) – Some of China’s biggest banks are expected to post their first drop in first-half profits since the global financial crisis, hit by an increase in bad debts and higher loan loss provisions due to the coronavirus pandemic, analysts and official data indicate.
The big five state-owned banks, including the Industrial and Commercial Bank of China (ICBC), Construction Bank of China (CCB) and Bank of China (BoC), kicked off their earnings season on August 28.
“Banks had it easy in the past, but now there are many signs that they are under great pressure,” said Hong Hao, research manager at BoCom International. “The pandemic has hit small businesses hard… the balance sheets will not be pretty. “
China’s commercial banks overall posted a 9.4% drop in first-half net profit, while the six largest recorded a 12% decline from a year ago, China data shows. Banking and Insurance Regulatory Commission (CBIRC).
The Chinese cabinet said in June that authorities will push financial institutions to sacrifice 1.5 trillion yuan ($ 212 billion) in profits this year to support businesses of all kinds by lowering loan rates and fees and deferring. loan payments.
The banking regulator has asked some state lenders to fully recognize bad loans on balance sheets and increase the buffers to cover soured debt in the first half of the year, which will weigh on profits, told Reuters two bankers from one of the lenders.
Rarely, some major brokerage firms in China have canceled their forecasts for first-half bank profits. An analyst, speaking to Reuters, spoke of uncertainties about “the profits that each bank can sacrifice for the real economy”.
Some smaller banks are also being pressured by the regulator to take measures such as cutting bankers’ salaries to consolidate their balance sheets and deal with “tough days,” the bankers previously said.
In recent interviews with state media, CBIRC Chairman Guo Shuqing urged banks to set aside more money to write off loan losses and come up with “realistic” profit plans.
China’s banking sector is expected to have 3.4 trillion yuan ($ 490 billion) in bad debts in 2020 to contain financial risks in an economy weakened by COVID-19, state news agency Xinhua reported on August 13. .
The CBIRC and the banks did not immediately respond to requests for comment.
China’s economy returned to growth in the second quarter after a deep virus-induced recession earlier this year, but analysts say the recovery remains fragile. Regulators have urged lenders to offer cheap loans and lend more to small businesses to support jobs and growth.
“It is highly likely that banks will continue to implement some of the fiscal and monetary stimulus policies to counter the impact of COVID-19 in the second half of 2020,” said Zhang Chi, rating director of Fitch Bohua, the China unit of the rating agency.
“Lower interest rates, fee cuts, a surge in lending and loan forbearance measures will continue to squeeze lenders’ net interest margins.”
Reporting by Cheng Leng, Zhang Yan in Beijing and Sumeet Chatterjee in Hong Kong; Editing by Tony Munroe and Kim Coghill