China’s state-owned banking system will face continued bad debt pressure in the coming quarters due to the inability of borrowers to repay their loans. That’s the conclusion analysts are drawing from the latest earnings reports released by China’s state-owned banks.
China’s National Bureau of Statistics (NBS) recently released its third quarter economic growth report, showing that the Chinese economy grew at a 4.9% pace during the quarter. This is a very impressive figure at a time when most countries around the world are still struggling with the neo-coronavirus epidemic.
However, the results released Friday (Oct. 30) by the five largest state-owned banks show that the “sons of the nation” are not so happy with their results, as their profits and bad debts have deteriorated to varying degrees.
The Industrial and Commercial Bank of China (ICBC), which tops the list of the top five banks, reported a 4.7% drop in third-quarter earnings, although a slight improvement over the precipitous drop in the second quarter.
Bank of Communications of China reported a 12.36% year-over-year decline in net profit for the first three quarters, making it the only one of the big five banks that has so far failed to shake off a double-digit drop in net profit. The bank’s non-performing loan ratio was 1.67%, up 0.2 percentage points from the end of the previous year.
Bank of China’s net profit declined 8.7% year-over-year, and the group’s asset impairment loss was nearly RMB100 billion, up about 60% year-over-year. Total liabilities were 22.6 trillion yuan, up 8.68% from the end of the previous year, and the non-performing loan ratio was 1.48%, up 0.11 percentage points from the end of the previous year.
The other two of the five largest banks, Agricultural Bank of China and China Construction Bank, both saw their bad debt ratios rise and their profits fall.
According to Chinese media reports, at least 1,300 bank branches and subsidiaries were closed in the first half of this year. The four state-owned banks have laid off a combined 26,000 employees.
This is a huge contrast to the days when the banking industry was “laying around making money” a few years ago. As a bank executive said some years ago, “The banks are making so much profit that we are sometimes embarrassed to announce them.
The Securities Daily quoted Pan He Lin, executive director of the Institute of Digital Economy at the Central South University of Finance and Economics and Law, as saying that although only a small fraction of listed banks’ third-quarter financial results are disclosed, they are leaders in the banking industry, and their profit performance is likely to be stronger than that of non-listed banks.
A large number of non-listed banks, nearly 100 of which have already disclosed their results, have seen their profits fall sharply. According to the Securities Daily, 75% of them are loss-making enterprises. There are 31 companies whose net profit fell by more than 10% year-on-year, and only 31 companies whose net profit increased by more than 20% year-on-year. Only 5 companies saw a year-on-year increase in net profit of more than 20%.
According to Reuters, Winsor Securities banking analyst Yi Guo believes that the strength of the economic recovery will affect people’s expectations of bank asset quality, and that the peak of corporate loan repayment pressure in the banking sector may occur around the middle of next year.
During the fight against the epidemic, the Chinese government guided banks to lower their mortgage lending standards in order to control the epidemic as quickly as possible and reduce the losses of businesses. At the peak of the epidemic, the government also asked banks to postpone corporate loan repayments in order to increase liquidity in the economy.
But how much bad debt this initiative will bring to the banking sector, experts say, will be evident in the coming months.
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