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Coronavirus dents profitability at China’s commercial banks

(ATF) Profitability at China’s banks fell substantially in the first half as the coronavirus downturn damped economic activity. 

According to data from the China Banking and Insurance Regulatory Commission, commercial banks achieved a cumulative net profit of one trillion yuan ($143 billion) in the first six months of 2020, a year-on-year decline of 9.4%. 

There was bad news on liabilities too, with levels of bad debt rising as more borrowers, faced with declining revenue during the economic clump, failed to pay their obligations. The balance of non-performing loans and non-performing loan ratios of commercial banks doubled, with a provision coverage ratio of 182.4%, a decrease of 0.80 of a percentage point from the end of the first quarter.

Total assets grew steadily, however. By the end of June, the domestic- and foreign-currency assets of China’s banking financial institutions was 309.4tn yuan, up 9.7%. Assets of large commercial banks totalled 126tn yuan, accounting for 41% of all bank assets – and increase of 10.1%. Assets of joint-stock commercial banks amounted to 55.7tn yuan, accounting for 18%, and increasing by 11.8%.

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In terms of credit services, loans to small and micro enterprises by banking financial institutions have grown rapidly, with a balance of 40.7tn yuan. Among them, the balance of inclusive small- and micro-enterprise loans with a single-account credit of 10 million yuan and less was 13.7tn yuan, a 17.7% increase from the beginning of the year. Loans for affordable housing projects were 6.6tn yuan, up 2.7%.

Affected by the epidemic, the non-performing loan ratio and balance of China’s commercial banks have “doubled”, but the asset quality has remained basically stable, the commission said. 

At the end of the second quarter, the non-performing loan balance of commercial banks was 2.74tn yuan, an increase of 124.3bn yuan from the end of March; the non-performing loan ratio of commercial banks was 1.94%, an increase of 0.03 of a percentage point quarter-on-quarter. The normal loan balance of commercial banks is 138tn yuan, of which the normal loan balance is 134tn yuan, and the special loan balance is 3.9tn yuan.

The average return on capital on commercial banks was 10.4%, while that on assets was 0.83%, a decrease of 0.15 of a percentage point from the end of the previous quarter.

Chris Gill

With over 30 years reporting on China, Gill offers a daily digest of what is happening in the PRC.

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