Beijing — China’s biggest banks eked out profit growth in the first quarter even as bad loans climbed with borrowers reeling from the worst economic slump in four decades.
In earnings releases on Tuesday, Industrial & Commercial Bank of China (ICBC) reported a 3% rise in first quarter profit, the slowest since the end of 2018. Bank of Communications posted just a 1.8% gain. Agricultural Bank of China delivered a 4.8% increase, while China Construction Bank saw a 5.1% increase.
While a battery of relief measures are helping to avert a deeper hit, China’s state-owned banks could face a drop in profits in 2020 as the government calls on them to bail out millions of struggling businesses hurt by the coronavirus outbreak.
Banks in the world’s most populous nation face additional credit costs of almost 1.6-trillion yuan ($226bn), S&P Global forecast earlier in April. Credit losses are cascading through the global banking system, with the biggest US lenders setting aside $25bn to cover bad debt. HSBC Holdings warned on Tuesday its credit losses could reach $11bn in 2020.
“Stabilisation of key economic data is crucial for the net non-performing loan formation rate to peak and balance sheets to recover,” analysts led by Zhang Shuaishuai at China International Capital said in an April 15 note.
China will see the slowest growth in 2020 in more than 40 years, according to economists, who have drastically slashed their full-year forecasts for GDP growth just to 1.8%.
In a severe downside case, assuming economic growth at 4.8% annually until 2021, China’s banking industry could face an unprecedented 39% slump in profits in 2020, according to UBS Group. Without government forbearance measures, their earnings may tumble by 70% to absorb the wave of bad debt.
Policymakers are taking action to protect companies and the nation’s $41-trillion banking industry, including injecting liquidity, cutting lending rates, rolling over loans to companies at risk of missing payments, and relaxing guidelines on how to categorise overdue debt.
The China Banking & Insurance Regulatory Commission last week revealed the industry’s non-performing loan ratio nudged up just 0.06 percentage point to 2.04% at the end of March. That comes after lenders deferred payments on and rolled over a combined 1.5-trillion yuan in loans.
ICBC set aside 59.5-billion yuan of provisions in the first quarter, up only 2%. AgBank’s provisions climbed 5%.
Consumer debt, however, has seen an immediate hit from the lockdown as millions of people lost their jobs. Fitch Ratings expects the non-performing loan ratio for consumer loans and credit card receivables to more than double to about 5%.
Investors have never been so downbeat on Chinese lenders’ outlook. Shares of the biggest banks are trading at about 0.54 times their forecast book value, a near record low valuation, after underperforming the benchmark indexes in Hong Kong and on the mainland for most of the past five years.
Bloomberg
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