Chinese banks brace for cost of national service to shore up economy as debt reprieve, soured loans erode earnings
- Lenders have been asked to sacrifice profits, extend debt reprieve to businesses, and hire new graduates to ease unemployment
- Banks are expected to report weaker second-quarter earnings due to the lingering effects of coronavirus as bad loans accumulate
The first-half earnings reports, starting from August 28, will showcase the extent of damage to each Chinese banking group as bad loans reached the highest in a decade. State-mandated forbearance measures to help small businesses weather the crisis, could have also undermined their profitability.
“I wouldn’t be surprised if some of the banks’ net profit declined by as much as 20 per cent in the second quarter” versus a 4-5 per cent growth rate in the first, said Terry Sun, a banking analyst at CMB International Securities. “We believe Chinese banks could be kitchen-sinking amid Covid-19 shock” or front-loading the bad news at the earliest chance, he added.
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Chinese banks’ net profits fell 24 per cent during the second quarter compared with a year earlier, the commission said earlier this month.
Cindy Wang, an analyst at DBS Bank based in Hong Kong said banks would typically choose to delay loan loss provisions until the fourth quarter. But the pandemic has changed the balance of things.
