Big Chinese banks bear brunt of pandemic recovery

Beijing, Aug 28 (efe-epa).- Large Chinese banks could present losses in the first half of the year after Beijing demanded a greater collaboration in the economic recovery following the COVID-19 pandemic, already relatively under control in the country.

The government estimates are that the combined profits of Chinese banks fell 9.4 percent year-on-year in the first six months of the year.

This week, the state-owned banks known as the “Big Five,” all listed on the Hong Kong Stock Exchange, will publish their results for the first half of 2020: the first will be the Industrial and Commercial Bank (ICBC, the largest in the world).

Following it will be the Agricultural Bank (ABC), the Communications Bank (BoCom), the Construction Bank (CCB) and the Bank of China.

Risk analysis firms such as Standard & Poor’s (S&P) already predicted before the start of the pandemic that the profits of Chinese banks would “remain under pressure” in 2020 due to the fact that the “high” levels of “questionable loans” would remain.

However, before the summer, well into the COVID-19 crisis, the same company pointed out that, “despite the fact that some banks could present losses this year, the long-term trends of the banking industry remain stable.” They chose not to lower the risk rating of the Chinese banking sector, situated at the level of countries such as Brazil, Colombia or Portugal.

On Tuesday, another risk rating agency, Moody’s, pointed out that “the pressure on the quality of assets and profitability” of banks will continue to be high, since “consumer confidence remains weak due to the slow recovery after the pandemic and credit costs remain high despite multiple government relief measures.”

In a recent interview with the state-owned Xinhua agency, the president of China Bank and Insurance Regulatory Commission (CBIRC), Guo Shuqing, said the risks are “controllable in general.”

According to Guo, despite the “strong resilience” shown by the stock, bond and currency markets since the beginning of the pandemic in China, risks such as “increased pressure” on non-performing loans cannot be ignored.

This year, unpaid loans facing Chinese banks amount to 3.4 trillion yuan ($ 494,172 million), an increase of 48 percent compared to the amount in 2019.

It should be remembered that, although the NPL ratio has gone from 1.86 percent to 1.94 percent between January and June, it continues to be among the lowest in the world.

The head of the Chinese regulator indicated that the increase in unpaid loans is “inevitable,” so he promised to “increase efforts” in this regard, but without neglecting the main objective: to guarantee the financing of small and medium-sized companies.

According to the country’s Prime Minister Li Keqiang in May, these types of organizations account for 90 percent of the jobs created now in China.

According to data from the CBIRC, the number of loans to SMEs that have come to be considered doubtful has grown by 9.25 percent year-on-year since the beginning of the year.

Now, the default rate of SMEs stands at 2.99 percent, which means that it is 0.88 percentage points above the general ratio, although still at “tolerable levels,” Li Junfeng, the director of the department of Inclusive Financing of the banking regulator said earlier this week.

In his opinion, the efforts of the banking sector to increase financing to allow for recovery after the pandemic could cause the delinquency in loans to increase next year too, although he said China has “ample capacity and tools” to cope with such pressure.

Beijing has already reached into the toolbox this year: for example, it has lowered its cash ratio requirements (RRR, the percentages of funds a bank cannot lend) up to three times to allow greater lending.

In the first half of 2020, new yuan-denominated loans worth 12.09 trillion yuan ($1.76 trillion) have been extended, 25 percent more than in the same period of 2019, with record figures in sectors such as manufacturing.

The focus is on large state banks due to their massive size, but some experts point out that the problem could be greater in small regional banks.

This year, up to four instances have been reported in the country in which a bank’s clients have panicked to withdraw their savings due to rumors that the entity was not in good health.