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China’s State Banks’ Profits Fall and Bad Debts Rise

China’s big five state banks announced their financials on Friday October 30 and stated that their profits and debts have continued to deteriorate.

The Industrial and Commercial Bank of China (ICBC), which has the largest number of assets, posted a 4.7 percent decline in third-quarter profits.

The Bank of Communications (BoCom) reported a drop in net profits of 12.36 percent year-on-year in the first three quarters. The bank’s non-performing loan ratio was 1.67 percent, an increase of 0.2 percentage points from the end of the previous year.

The Bank of China’s net profit dropped 8.7 percent year-on-year, and the group’s asset impairment losses were nearly 100 billion yuan, an increase of 60 percent year-on-year. The total debt was 22.6 trillion yuan, an increase of 8.68 percent over the end of the previous year. The non-performing loan ratio was 1.48 percent, an increase of 0.11 percentage points over the end of the previous year.

According to Chinese media, in the first half of this year, at least 1,300 bank outlets and branches were closed. A total of 26,000 state bank employees were laid off.

China’s Securities Daily newspaper quoted Pan Helin, a professor from Zhongnan University of Economics and Law. He stated that, although only a small portion of the publicly listed banks disclosed their third-quarter financial reports, they are the best performers in the industry and their profitability is stronger than the unlisted banks. Among the large number of unlisted banks, based on the financial reports of nearly a hundred companies that have already disclosed their financial performances, profits have fallen sharply. According to Securities Daily, the proportion of loss-making companies is as high as 75 percent. 31 companies saw a double digit drop in net profits.

Reuters reported that Guo Yi, an analyst with Wanlian Securities, said the degree of economic recovery will impact expectations for the asset quality of banks, with banks likely to see corporate loan repayment pressure peaking around mid-2021.

Earlier in the year, the Chinese government asked banks to lower mortgage standards in order to reduce corporate losses and curb the impact of the epidemic. The government also asked banks to delay corporate loan repayments to increase economic liquidity. It is hard to tell how many bad loans will be brought to the banks through the use of this measure. Experts believe that the consequences will be unraveled in the next few months.

Source: Voice of America, October 30, 2020