Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  News  >  Economy & Forex  >  All News

News : Economy & Forex
Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesBusiness LeadersFinance Pro.CalendarSectors 
All NewsEconomyCurrencies / ForexCryptocurrenciesEconomic EventsPress releases

The Last Stronghold of Growing Bank Profits Cannot Hold -- Heard on the Street

share with twitter share with LinkedIn share with facebook
04/29/2020 | 07:42am EDT

By Mike Bird

China's four largest listed banks reported growing profits in first-quarter earnings out this week, even after the collapse in economic activity caused by the coronavirus pandemic.

The impressive ability of major banks to weather the storm won't last the year. There is a direct and awkward trade-off between Chinese banks' asset quality and the support they provide to the economy in a pinch. The cost of their national service will eventually weigh on results one way or another.

Agricultural Bank of China Ltd., China Construction Bank Corp. and Industrial and Commercial Bank of China Ltd. reported net profit growth of 4.8%, 5.1% and 3%, respectively, compared with the same quarter a year earlier. Bank of China Ltd.'s profits were practically flat year-over-year after increased impairments were accounted for.

A rise in earnings might seem unbelievable. Bank profits elsewhere in the world -- and those at overseas banks operating in China -- are collapsing. But being a lender in an economy where credit allocation is often determined by politics, rather than risk, has its advantages during a pandemic.

Perhaps, however, only in the short term.

The figures to keep an eye on as the year goes on are net interest margins and nonperforming loans. Already shrinking margins ticked slightly lower at three of the four, while remaining flat at ICBC. The nonperforming loan ratio was little changed, though the NPL formation ratio -- a measure of how quickly new bad loans are forming -- did tick up at ICBC. Bank of China didn't report NPL figures.

The first quarter figures don't likely show the full story. UBS research published in March suggests that cheap prices of Chinese bank stocks, which trade at a fraction of their book value, imply an NPL ratio of more like 10% to 12% for major lenders.

New nonperforming loans will be recognized slowly, with major banks pressured to offer forbearance to clients at least until the worst of the economic pressure has ended. Credit-ratings firm Fitch expects the ratio of recognized nonperforming loans to rise to 3.5% this year from 1.5% in June last year, among the banks it analyzes.

Large national banks aren't that exposed to the small- and medium-size private sector businesses that will suffer the worst of the economic damage, but as major state-owned institutions, they are first in line to support smaller and regional lenders which fall into distress.

The coronavirus-related shock for China's major banks hasn't fed through to their results immediately, but it will weigh on them eventually. Delaying recognition of the problem may make the hangover even longer.

Write to Mike Bird at Mike.Bird@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
AGRICULTURAL BANK OF CHINA LIMITED -2.63% 2.96 End-of-day quote.-13.70%
AGRICULTURAL BANK OF CHINA LIMITED -7.69% 3.36 End-of-day quote.-8.94%
BANK OF CHINA LIMITED -1.40% 2.81 End-of-day quote.-15.62%
BANK OF CHINA LIMITED -2.65% 3.67 End-of-day quote.-0.54%
CHINA CONSTRUCTION BANK CORPORATION -1.84% 6.39 End-of-day quote.-5.05%
CHINA CONSTRUCTION BANK CORPORATION -8.65% 6.55 End-of-day quote.-9.41%
INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED -1.96% 4.99 End-of-day quote.-16.83%
INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED -2.97% 5.22 End-of-day quote.-11.22%
LINE CORPORATION -0.54% 5500 End-of-day quote.2.80%
RISE, INC. -3.13% 31 End-of-day quote.3.33%
WORLD CO., LTD. -5.40% 1420 End-of-day quote.-47.23%
share with twitter share with LinkedIn share with facebook
Latest news "Economy & Forex"
02:24pU.S. CDC reports coronavirus cases rise by 62,918 to 3.2 million total
RE
02:15pU.S. Weighs Limited Options to Punish China Over Hong Kong
DJ
02:03pLibya's NOC accuses UAE of being behind oil blockade
RE
01:29pFive Tunisian parties seek to oust Ghanouchi as parliament speaker
RE
01:11pNOC NATIONAL OIL : condemns renewed blockade of Libyan oil exports
PU
12:41pWORLD BANK : How to Develop a National Green Taxonomy for Emerging Markets - A New World Bank Guide
PU
12:19pMore than 70 workers test positive for COVID-19 on an English farm
RE
12:06pWHO reports record daily increase in global coronavirus cases, up over 230,000
RE
12:06pWorld health organization reports record increase in global coronavirus cases, rising by 230,370 in 24 hours -situation report
RE
11:28aArizona adult intensive care unit (icu) beds in use by all patients at 89% as of saturday, unchanged from the previous day - state health dept
RE
Latest news "Economy & Forex"