China’s Banks To Face First Profit Drop In 10 Years

China’s Banks To Face First Profit Drop In Years

China’s banks are not immune to the recession triggered by the COVID-19 crisis. Analysts and official data indicate that some of the country’s largest banks will soon show the first drop in first-half profits since the Great Recession.

Reuters reported that China’s banks have been hard-hit as loans have gone sour and the country’s financial institutions gear up for more bad debt. In addition, the Chinese government has pressured the banks to forego 1.5 trillion yuan ($212 billion) in profit this year by lowering lending rates and fees and deferring loan payments.

The big five state banks — including Bank of China (BoC), Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB) — will issue earnings reports starting Aug. 28.

“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. He told Reuters that “the pandemic has hit small businesses hard … the balance sheets won’t be pretty.”

The first-half profits of China’s commercial banks overall fell 9.4 percent, while the six biggest saw a drop of 12 percent in profits from the same period in 2019, according to the China Banking and Insurance Regulatory Commission data.

On the other hand, China’s economy actually expanded 3.2 percent in the second quarter of 2020, compared to April through June of last year. That’s in contrast to the first quarter (January-March), when China’s economy shrunk by 6.8 percent, compared to the same period the previous year. This was the first such contraction since the country began reporting quarterly gross domestic product in 1992.

All told, China’s economy slid just 1.6 percent in the first half of this year compared to the first half of 2019, according to China’s National Bureau of Statistics.

China’s second-quarter 2020 growth beat economists’ median estimate of 2.6 percent growth. Some estimates said China would actually further contract in the second quarter.