(Reuters) – SHANGHAI, March 29 (Reuters) – Five of China’s largest banks have stated that the country’s lenders will face a number of challenges this year, including the pandemic, global politics, and domestic real estate turmoil.
In its annual earnings report on Wednesday, the world’s largest lender, Industrial and Commercial Bank of China (601398.SS), warned that China faces “shrinking demand, disrupted supply, and weakening expectations.”
In its full-year report, Agricultural Bank of China Ltd (601288.SS) (AgBank) indicated the same.
China’s banking industry is facing “a more complicated and severe business environment,” according to China Construction Bank Corp (CCB)(601939.SS), the country’s second-largest lender by assets.
“The global epidemic will reoccur, developed economies’ easing policies will be reversed, and geopolitical conflicts will worsen,” the Bank of China (BoC) (601988.SS) said on Tuesday.
Meanwhile, the president of China’s Bank of Communications Co Ltd (BoCom) (601328.SS) stated on Friday that the bank would struggle to deliver satisfactory earnings this year.
China has been dealing with a resurgence of COVID infections in some of its largest cities, prompting partial and full-scale lockdowns that analysts say will be detrimental to the economy.
According to Nicholas Zhu, a banking analyst at Moody’s, the main impact on banks will be “rising loan delinquencies among service sectors.”
Wholesale and retail, leisure travel, and other consumer discretionary services are among these industries,” he added.
The banks’ warnings about the difficult outlook coincided with the five lenders’ full-year net profit figures, which exceeded expectations.
ICBC’s net profit increased 10.3 percent year on year to 348.3 billion yuan, exceeding expectations, while AgBank also outperformed.
Non-performing loan ratios fell at four of the five lenders, but increased at BoC.
Corporate bad loans to the real estate sector, on the other hand, increased 98 percent at AgBank to 28.2 billion yuan, as developers continue to benefit from stringent debt rules implemented last year. Real estate bad loans at CCB increased by 50% year on year to 13.5 billion yuan.
Since the implementation of the ‘three red lines’ debt ratio rules last year, developers of all sizes have experienced cash flow issues.
According to Zhu, large banks’ exposures to distressed developers like Evergrande account for a small proportion of their loan books and shareholders’ equity.
“The impact on some regional banks will be greater because their portfolios are more concentrated and have fewer mitigants,” he explained.
Except for CCB, the net interest margin, a key indicator of bank profitability, remained stable at all lenders.
(1 US dollar = 6.3673 Chinese yuan renminbi)
Source: Reuters
