Chinese Banks Facing Persistent Bad Loan Pressure After Declining Third Quarter Profits

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VSChina’s major banks continue to post profit declines in Q3

NPL ratios increase, NIM varies in all areas

Profits could improve further in Q4, but bad debt analysts weigh in

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BEIJING / SHANGHAI, October 30 (Reuters)China’s biggest government lenders will see bad debt pressures persist over the next few quarters as some borrowers struggle to repay their loans after months of inactivity, analysts said on Friday after a large number of banks posted declining quarterly profits.

Five of the country’s largest banks, including the world’s largest bank, Industrial and Commercial Bank of China (ICBC) 1398.HK601398.SS, posted profit declines in the third quarter, although they recovered slightly from record second quarter profit declines.

China has put in place a series of policies to combat the impact of COVID-19 shutdowns on the economy, but with some forbearance measures set to expire, senior bankers have already warned that sour debts will continue to rise. emerge later this year and next year.

Guo Yi, analyst at Wanlian Securities, said the degree of economic recovery would impact expectations about the quality of banks’ assets, as banks are likely to see the pressure on corporate loan repayments peak in the mid-year. 2021.

The government has guided banks to lead a lending campaign to support the virus-stricken economy and the coming months will inevitably show how many of these loans turn out to be of poor quality.

ICBC, the world’s largest bank by assets, reported a 4.7% drop in profits in the third quarter.

Following this were Bank of Communications Co 3328.HK601328.SS (BoCom), Bank of China Ltd (BoC) 3988.HK601988.SS and Agricultural Bank of China Ltd (AgBank) 601288.SS, 1288.HK, who all reported lower incomes.

China Construction Bank Corp (CCB) also recorded a decline over the same period on Thursday.

Lenders are expected to experience less pronounced profit declines in the coming fourth quarter, but their performance will also be influenced by future policies and regulations, said Wang Yifeng, analyst at Everbright Securities.

ICBC, CCB, BoC and AgBank all posted rising NPLs ratios, while BoCom said its debt-to-equity ratio held steady.

At the height of the pandemic earlier this year, China asked banks to delay repayments to borrowers in order to ease cash flow problems.

Net interest margins, a key measure of profitability, varied throughout.

At BoCom, the margin increased but at other lenders, it fell or stabilized. AgBank did not release the indicator for the last quarter.

($ 1 = 6.6866 Chinese yuan)

(Reporting by Cheng Leng and Zhang Yan in Beijing, with Engen Tham in Shanghai Editing by Edwina Gibbs and David Holmes)

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