China's big banks brace for lagging Covid-19 risks as bad loans rise

Beijing

FOUR of China's five largest state-owned banks said they have increased their provisions against bad debt to brace for future losses due to the impact of the global coronavirus pandemic.

All five reported their biggest profit falls in at least a decade and an increase in soured loans when announcing their half-year results on Sunday and last week.

The results highlight the impact of the pandemic and the economic slowdown on Chinese banks as borrowers struggle to repay debt after months of lockdown and some sectors, such as those in the travel industry, labour to survive on lingering Covid-19 fears.

Amid the grind, China's banks have been asked to step up and lend to flagging sectors while sacrificing profits in a bid to revive the country's fortunes.

Agricultural Bank of China (AgBank) said "the lagging impact of the epidemic and the risk of uncertainty are expected to be further transmitted to the banking industry", in its half-year results on Sunday.

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China Construction Bank (CCB), the country's second-largest lender by assets, said it plans to assess credit risks and up provisions, just as Bank of China (BoC) said the same.

Even more directly, Bank of Communications (BoCom) said on Friday it had boosted "provisions to counter the future impact of the pandemic".

Second-quarter loan-loss provisions were up 61 per cent to 436 per cent compared to the same period last year at Industrial and Commercial Bank of China (ICBC), CCB, AgBank and BoC, data from China International Capital Corp (CICC) showed.

The crater in first-half profits was mostly down to provisioning ordered by regulators, said CICC on Monday, noting that second-quarter profit would otherwise have been 1.5 to 5.1 per cent for those four lenders.

"In the foreseeable future, downward pressure of banks' profit and revenue will continue to weigh," said Wang Yifeng, an analyst with Everbright Securities, adding that banks will keep boosting provisions in the third quarter.

Net interest margins (NIM) - a key gauge of bank profitability - fell at ICBC, the world's largest commercial lender by assets, BoCom, CCB and AgBank. But at BoC, NIM improved slightly to 1.82 from 1.8 per cent three months earlier. AgBank's fell to 2.14 per cent at the end of June from 2.17 per cent at the end of March, while at ICBC it narrowed to 1.98 per cent at the end of the second quarter, from 2.2 per cent at the end of the first. REUTERS