Net profits at Chinese banks slid 24 percent year-on-year in the second quarter amid calls for the mainland sector to sacrifice the majority of their profits.
Chinese banks collectively posted a net profit of 426.7 billion yuan (US$61.4 billion), down from 559 billion yuan last year and 600 billion yuan in the first quarter, according to the China Banking and Insurance Regulatory Commission (CIBRC).
Second-quarter profitability was lower than analyst expectations driven by higher loan loss provisions – loan loss ratio rose 0.04 percentage points from the first quarter to 3.54 percent.
This is also part of a broader backdrop of a slowing Chinese economy which has seen bad loans rise six quarters in a row following the latest three-month period. China’s banking sector now houses bad loans totaling 2.7 trillion yuan ($390 billion) with a non-performing loan ratio of 1.94 percent – a 10-year high.
«Sacrifice Profits»
Although profit falls could be buffered by a China’s 3.2 percent second-quarter growth – beating expectations and rebounding from the 6.8 percent contraction in the previous quarter – this could be offset by government calls to extend further economic support amid the pandemic.
The governor of the People’s Bank of China (PBoC), Yi Gang, urged the sector «to sacrifice profits to benefit corporate borrowers» by reducing borrowing costs in a statement made in June. The amount earmarked for sacrifice was 1.5 trillion yuan ($220 billion), or 75 percent of 2019’s full-year net profit.
