China’s commercial banks are likely to post quarterly profit growth of around 3% in the second and third quarter of 2021, Bank of China 601988.SS, 3988.HK, the country’s fourth largest lender, said in a report on Monday.
The profitability of the Chinese banking sector, which has recovered from the hit from the COVID-19 pandemic, will nonetheless be pressured by declining loan rates, loan-loss provisioning requirements and challenges faced by non-interest earning businesses, according to the report.
China’s largest lenders managed to eke out a small increase in profit for 2020, a sharp turnaround from their worst ever first half performance at the start of the year as the coronavirus pandemic got underway.
Five of China’s largest state-owned banks saw net profit grow by between 1.5% and 2.8% in the first quarter of 2021, as economic recovery boosted the country’s GDP by 18.3% in the three months versus the year earlier period.
Lenders also increased loan-loss provisions throughout 2020 as Beijing urged them to step up and lend to flagging sectors.
Banks’ asset quality will remain stable overall for Chinese lenders in the third quarter, with the bad-loan ratio dropping despite the outstanding amount of bad debt increasing slightly, the report added.
Banks will see more defaults from smaller businesses, credit card loans and consumer loans, while asset quality in the transportation sector and catering sector will remain under pressure, it said.
The asset quality of the property market is also undergoing a “deep adjustment”, it noted.
The non-performing loan ratio of Chinese commercial banks was 1.8% at the end of March, public data shows.
Source: Reuters (Reporting by Cheng Leng, Zhang Yan and Ryan Woo; Editing by Kirsten Donovan)