China’s largest banks have announced a decline in profits
The coronavirus pandemic seriously hit all segments of China. The largest banks in China are claiming a decline in profits, the largest in the last 10 years. The consequences of the crisis will have an impact on institutions for a long time to come.
Local credit institutions are talking about an increase in the number of loans, and this trend will continue in the future. The banking segment has weakened its position during the pandemic and the positive trend is still weak.
The other day five largest banks of the country presented their financial statements. All institutions saw a decline in profits in the first half of last year, the minimum value of decline – 10%. To reduce damage, banks increased the amount of reserved funds, which are used to compensate for losses on loans. This practice is observed in financial institutions around the world and is the best solution to reduce the consequences of problem loans.
The Chinese government encouraged banks to contribute to the country’s economy by using their own operating mechanisms and capabilities. The authorities asked financial institutions to allocate about $219 billion of their profits to help businesses and households. To this end, banks reduced credit rates and introduced a grace period to repay loans.
The Chinese economy last year showed growth of only 1%, which is the minimum value for the country in 40 years. The reason for this was both global and domestic demand reduction. In addition, the global market has significantly reduced economic and business activity, which also affected the recovery of processes in China.
China was the first to take the blow of coronavirus, but also the first to begin recovery. The government managed to launch production operations as quickly as possible, and the policy of supporting the economy gave results already in the second half of last year. However, problems still exist and the consequences of the pandemic affect the development of various segments, including the banking sector. The quality of assets is now suffering due to the current moratorium on repaying loans and paying interest on them. Experts predict that the situation will change for the better after the moratorium is lifted, which is scheduled for the end of this month.
According to an analysis by Morgan Stanley, Chinese medium-sized credit institutions show better results than large companies, but this does not take into account the reserves that are allocated to compensate for debt on loans.
In late 2020, the operating profit of medium-sized banks in China increased by 8-27% compared to the same period in 2019. These figures are better than the seven large organizations, where the growth is fixed at 6%.
