The banks also warned that the second half would continue to be challenging. “The global economy
faces unfavorable conditions including significant contractions in global trade and investments, volatile financial markets, limitations on interactions between countries, disruption of globalization and heightened geopolitical tensions,” ICBC said in its report.
Pressured by the government to lend to businesses, loans and advances at the four big banks rose between 7% and 10% in the first half, even though bad debt surged.In total, the nation’s more than 1,000 commercial banks posted a 24% decline in second quarter profits, with non-performing loans hitting a record 2.7 trillion yuan. Citigroup Inc. last month slashed 2020 to 2022 earnings forecasts for major Chinese banks
by more than 10 percentage points and expects them to suffer a 13% drop in profit this year.
“Under mounting political pressure, China banks not only have had to further cut loan yields to subsidize the real economy, but also need to accelerate counter-cyclical provisioning and adopt more conservative NPL assumptions in setting provisions,” Citigroup analysts led by Judy Zhang wrote.
“The potential negative earnings growth will overhang the China banks’ near-term share performance.”
Investors have never been so downbeat on Chinese lenders’ outlook. Shares of the biggest banks are trading at about 0.45 times their forecast book value, a record low valuation, after underperforming the benchmark indexes in Hong Kong
and on the mainland for most of the past five years.
Speculation has also grown on whether Chinese banks
will be able to maintain paying out about 30% of their profit in dividends. Another lender, Bank of Communications Co., on Friday reported a 15% decline in profit and said it was looking at its dividend policy ahead.
“The dividend policy needs to be aligned with the external environment and conditions,” Bocom Vice President Guo Mang said on Friday. “It’s necessary for every bank to study their current policy -- while trying to retain more capital we should also handle the relationship between bank growth and shareholder dividends.”
joined the chorus of global lenders warning about a difficult economic outlook. HSBC Holdings Plc said the fallout from the pandemic may trigger loan losses of as much as $13 billion this year, while JPMorgan Chase & Co. spoke of a protracted downturn and said government stimulus was making it harder to gage the economic damage.In the worst case, China banks could be guided to reduce profit by around 20% to 25% in 2020, according to Jefferies analyst Shujin Chen.
Further reduction would hurt banks’ capital even without any dividend payout and would be harmful to financial stability, she said.China is recovering slowly as President Xi Jinping is accelerating his push to make the economy
more independent amid a broadening confrontation with the U.S. over everything from trade to finance and technology.
Tensions between the world’s two super powers over Hong Kong
has sparked tit-for-tat sanctions on politicians and officials on both sides over the past few weeks. China’s biggest lenders are looking over their accounts in order not to endanger their access to crucial dollar funding. The big four banks had $1.2 trillion in such funding at the end of June and could face fines for doing business with any of the 11 Hong Kong
and mainland officials targeted by U.S. sanctions.