Daily Management Review

China's largest banks show record drop in profits in a decade


Major Chinese banks have reported the most significant drop in profits in more than a decade amid rising bad debts and the authorities’ efforts to spur economic recovery.

Profits of Industrial & Commercial Bank of China Ltd. (ICBC), the world's largest bank by assets, China Construction Bank Corp., Agricultural Bank of China Ltd. and Bank of China Ltd. fell by at least 10% in the first half of 2020, follows from the reports of credit institutions.

Industrial & Commercial Bank of China increased loan loss provisions by 27%, while the figure for Bank of China, China's fourth largest bank, soared by 97%.

China Construction Bank and Agricultural Bank of China, the PRC's second and third largest banks, increased their loan loss provisions by 49% and 35%, respectively. Excluding deductions to reserves, the profit of all four banks increased by less than 10% compared to the same period a year earlier.

ICBC's first-half net profit fell 11.4% to 148.8 billion yuan ($ 21.67 billion) from 167.9 billion yuan a year earlier. Non-performing loans accounted for 1.5% of total loans, compared with 1.48% a year earlier.

China Construction Bank cut its net profit to 137.6 billion yuan from 154.2 billion yuan. The Agricultural Bank of China's net profit fell to 108.8 billion yuan from 121.4 billion yuan a year earlier, while the same figure for the Bank of China fell to 100.9 billion yuan from 114.0 billion yuan.

The net total profit of the Chinese banking sector in the first six months of the year fell 4.9% year on year, official data showed.

"The profitability of the banking sector will continue to come under relatively significant pressure over the next quarter or two amid the likelihood of further escalating risks," Zeng Gang, deputy director of the National Institute of Finance and Development in Beijing, told Bloomberg.

China's GDP in the first quarter of 2020 collapsed by 6.8% on an annualized basis, which was the first decline in the PRC economy since the publication of quarterly GDP data by the CSO in 1992. In the second quarter, China's economy returned to growth and expanded by 3.2% over the same period last year.

The Chinese government in June urged banks to donate 1.5 trillion yuan of profits to lower rates, fees, deferred payments and increase the volume of unsecured loans.

Banks began to grant deferrals for loans maturing after January 25. Later, regulators extended the preferential policy until March 31, 2021.

source: bloomberg.com