Subdued Earnings of Key Chinese Banks Raise Debt Concerns

Two of the primary financial institutions in China reported marginal growth in profit on Wednesday. They emphasized that Chinese Banks Raise Debt Concerns to be a substantial threat, as the economy still struggles to regain its strength following the pandemic clampdown.

Described in securities reports, The Industrial and Commercial Bank of China Ltd (ICBC), touted as the leading banker in the country, along with Bank of China (BoC), recorded half yearly augmentation in profits by 1.2% and 0.78% respectively, year-on-year.

Bank of China mostly holds local government financing vehicles (LGFV), for the defaults in their finances, which jeopardised the worth of its assets.

Being the prime lender units, the turbulent winds that these banks navigate include lower lending rates and the governmental nudge to stabilise the faltering economy. The latter has felt significant blows due to insufficient demand at both national and overseas frontiers, as well as write-off loans related to property-constructing bodies and local government funding vehicles.

Liu Jiandong, Chief Risk Officer at BoC, while addressing the press following the results, mentioned that various regional financing units that don’t have potent fiscal backing experienced a string of hazardous situations including defaults.

“What’s notable is the surfacing regional vulnerabilities from regions”, Liu cited, also adding that though the value of assets dipped slightly, it is measurable and within limits.

Both banks reported contracting net interest margin(NIM), – an imperative performance verdict – indicating that they face the test to enhance credit support to the fragile economy for the first half of this year.

The net interest margin at ICBC stood at 1.72% at the close of June, a marginal decrease from 1.77% for the end of March. BoC’s NIM visibly shrunk to 1.67% in end-June from 1.7% at the culmination of March.

During his speech, Liu underlined that BoC would sustain policies related to existing and new mortgages launched by central banking and other competent authorities.

The profitability of the respective banks is expected to face strain soon, due to the looming slice in current mortgage rates, says predictions from Tuesday.

Also, ICBC announced no dividends for preference shares for H1.

The non-performing loan (NPL) rate at ICBC was recorded at 1.36% for end-June, slightly lower than 1.38% at end-March, while, the same rose to 1.28% for BoC from 1.18%.

Bank of China’s mortgage NPL ratio hiked to 0.49%, a meagre rise of 0.02%, yet caused no profound depreciation in mortgage asset quality even though facing the heat.