MARKETS, RETAIL BANKING | Staff Reporter, China

Chinese listed banks' net profits down 9.05% in H1

Their fee and income growth slowed whilst NPLs rose.

Chinese listed banks’ net profits dropped 9.05% YoY during the first half of 2020, its first-ever overall negative growth on record, reports PwC.

This comes as the lenders increased provisions to strengthen their risk reserves on the back of an ongoing complicated economic situation driven by the ongoing pandemic and further exacerbated by political tensions.

Excluding the impact of provisions, the profit would have increased by 6.52% YoY.

“The first half of 2020, facing the COVID-19 pandemic and complicated operating environment, China banking industry has followed countercyclical adjustment policies and increased credit support for the economy. Thanks to the improvement in operations and risk control capabilities over the years, listed banks have weathered the storm smoothly with their assets and liabilities continuing to grow,” said James Tam, PwC Hong Kong banking and capital markets leader.

“However, due to the impact of the pandemic, the non-performing loans (NPL) ratio of most listed banks has risen, and there will be greater pressure on asset quality in the future,” he warned.

Listed Chinese banks’ loan prime rate (LPR) declined during the period, which coincided with the existing loans’ shift toward that benchmark. This led loan and bond investment yields of listed banks to also drop.

As a result, the overall net interest spread and net interest margin of banks narrowed, noted PwC.

The overall net fee and commission income growth of listed banks also slowed in H1, affected by the COVID-19 pandemic, the fee reduction and concession policy implementation.

Furthermore, under a moderately loosened monetary policy environment, the assets and liabilities of listed banks have grown rapidly.

As of the end-June, the growth rates of total assets and total liabilities were 7.65% and 7.74% respectively, higher than that in the same period of last year (the growth rates were 5.88% and 5.95% in H1 2019), and amounted to about $31.2t (RMB 212. 71t) and $28.74t (RMB 195.95t).

On the upside, asset quality has seen some gains during the period. The non-performing rate of listed banks has rebounded significantly, the overdue rate has remained relatively stable, and the price scissors between the two has narrowed.

However, affected by the pandemic, the amount of non-performing loans and overdue loans of listed banks continues to increase, and the growth rate was significantly faster year on year.

Non-performing amounts and overdue amounts increased by 10.19% and 4.50% from the end of last year to $255.11b (RMB1.74t) and $280.04b (RMB 1.91t) respectively.

“In the first half of the year, mainly affected by the COVID-19 pandemic, the NPL of the banking industry overall has become a rising trend. At the same time, under the requirements of regulatory-driven policy on principal and interest deferred payment, certain risk exposure is lagging,” said Bensong Cheng, PwC Hong Kong financial services partner.

“Listed banks are expected to have greater pressure on increasing non-performing loans in the future, which will bring challenges on asset quality control to the sector,” Cheng added.

For the second half of the year, listed banks are expected to focus on five priorities in order to prevent systemic financial risks: more targeted and efficient credit support to small and micro borrowers; to reform and strengthen capital base; regulatory compliance; wealth management business transformation; and digital transformation.

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