Daily Management Review

Pandemic Effect: Chinese Banks To Report The First First-Half Profit Fall In Over A Decade


Pandemic Effect: Chinese Banks To Report The First First-Half Profit Fall In Over A Decade
An increase in bad debt and higher loan-loss provisions because of the novel coronavirus pandemic will potentially result in some of China’s largest banks to post their first decline in first-half profits since the global financial crisis, according to official data from China. 
The top five state banks off China are Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), and Bank of China (BoC) and these have started to reveal their earnings report.
“Banks had it easy in the past, but now many signs indicate they’re under great pressure,” said Hong Hao, head of research at BoCom International. “The pandemic has hit small businesses hard … the balance sheets won’t be pretty.”
According to China Banking and Insurance Regulatory Commission (CBIRC) data, while the six biggest of the Chinese commercial banks reported a 12 per cent fall in net profits from a year ago in first half, on the overall the Chinese commercial banks posted a 9.4 per cent decline in net profits for the period.
The Chinese government has plans to urge financial institutions to sacrifice 1.5 trillion yuan ($212 billion) in profit this year in order to support all kinds of companies by bringing down lending rates and fees and deferring payments for loans, China’s cabinet had said in June.
In the first half of the year, bad loans should be fully recognized on balance sheets and buffers for covering souring debt should be increased by some state lenders of China, according to directions from the country’s banking regulator. These will put pressure on profits, according to reports published earlier.
Their forecasts for first-half bank earnings were cancelled some leading brokerages in China in what is seen as a rare move.
Uncertainties about “profits each bank may sacrifice for the real economy” were cited by one analyst according to a report published by Reuters.
According to reports published earlier, pressure to undertake measures such as slashing bankers’ salaries to shore up their balance sheets and face the “tough days” is being lid on some smaller banks by the banking regulator.
Banks were urged to set aside more cash as loan-loss buffers and draw up some “realistic” profit plans, said CBIRC chairman Guo Shuqing in recent interview with the Chinese state media.
It is expected that in 2020, 3.4 trillion yuan ($490 billion) of bad loans will be disposed off by China’s banking industry, with the aim of containing the financial risks in an economy that has been pushed back because of the novel coronavirus pandemic, said a report published in the official Xinhua News Agency on August 13.
No comments on the issue as available from the CBIRC and the banks.
Following a deep virus-induced slump at the start of the year, the Chinese economy returned to growth in the second quarter of the current year. Analysts have however maintained that the recovery is fragile. Banks and financial institutions are being pushed by regulators to lend cheap loans and lend more to small businesses to provide support to the employment and growth.
“It’s highly likely that banks will keep implementing 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 rating agency’s China unit