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Banks in China with Weaker Profits in Second Half of 2020

Banks in China will possibly record greater declines in profits during the second half of the year. And this was due to bad loans set to emerge more as a result of the coronavirus pandemic, based on Fitch Ratings.

From January to June 2020, Chinese banks’ net profit dropped 9.4% to about 1 trillion yuan or $146.2 billion, compared with the first half of 2019 on lower margins and higher expected loan losses.

The five Chinese mega banks showed at least a 10% year-on-year fall in profit; their highest earnings decline in about a decade.

According to Fitch, Chinese authorities have planned to dispose of 3.4 trillion yuan or $497 billion worth of bad loans from the banking sector this year. Then, only about one-third of that – 1.1 trillion yuan or $160.8 billion – were written off during the first half of 2020.

As China became the first country hit by the coronavirus, it is now one of the earliest to see a recovery in its economy. However, many difficulties stay, and the pressure on Chinese banks’ profitability might persist into the following year.

 

The U.S.-China Trade War

Furthermore, Fitch mentioned the ongoing U.S.-China tensions as an uncertainty weighing down prospects in the Chinese banking sector.

He said, “Despite the challenging outlook on profitability, we believe the Chinese banks still aim to pay dividends for 2020, which could limit their pace of growth.”

Chinese banks became the front line of the government’s effort in controlling the pandemic’s economic hit on households and businesses. The government is controlling a lot of lenders in China. And they were asked by Beijing to sacrifice returns. This was to support firms by lowering lending rates and deferring repayments on loans.

Still, Fitch held onto its stable outlook for the operating environment of Chinese banks. It noted that China’s banking system could avoid a massive build-up in credit risk by actively recognizing and resolving bad loans.

However, shares of Chinese banks continued to lag the broader markets on the mainland.

 

European Stocks

Elsewhere, European stocks edged higher on Friday morning. It seems to shrug off uncertainty stoked by Wall Street’s tech sell-off. As banks drag major indices into positive territory.

In addition to that, the pan-European Stoxx 600 moved 0.2 in early trade, with food and beverages falling 0.5% while banks boosted 2.4%.

For the Stateside, the Dow Jones Industrial Average plummeted 800 points or 2.8% on Thursday. With that, it records its steepest single-day losses since June. On the other hand, the S&P 500 declined 3.5%, and the Nasdaq Composite plunged 5%, tumbling from the record high hit on Wednesday.

Going back to Europe, the Reuters reported while citing executive and diplomatic sources that the EU is thinking of fresh sanctions on Russia after the poisoning of Putin critic Alexei Navalny, once they found the specific culprits.

Then, investors will also focus on key U.S. nonfarm payrolls at 1:30 p.m. London time. And this is for a signal on the state of the labor market recovery in the world’s largest economy.

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