70% of China’s Smaller Regional Banks Saw Profit Declines in First Half of 2020

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A new study of more than 100 smaller regional lenders in China indicates their profit levels dropped in the first half of 2020 in the wake of the COVID-19 pandemic, despite the moderate positive performance of the Chinese commercial banking sector as a whole.

Diyi Caijing (第一财经) looked at the 2020 second quarter financial reports released by 104 small and medium-sized lenders in China, and found that their total net profits were 43.081 billion yuan, for a decline of 4.8% compared to the figure of 45.249 billion yuan for the same period last year.

Nearly 70% of these 104 smaller lenders saw YoY declines in their net profits, with the drop exceeding 50% in some cases.

Banks which saw YoY net profit declines of over 50% included Liaoyang Bank (辽阳银行), Shanxi Yuxian Rural Commercial Bank (山西盂县农商行), Henan Xinzheng Rural Commercial Bank (河南新郑农商行), Shandong Laizhou Rural Commercial Bank (山东莱州农商行) and Guizhou Xiuwen Rural Commercial Bank (贵州修文农商行).

Only 34 of these smaller Chinese banks posted YoY gains, none of which were considerable and almost all of which were in the single digits.

The poor profit performance of China’s smaller lenders stands in contrast with the overall performance of the Chinese commercial banking sector, which saw a 5% YoY rise in net profits in the first quarter to reach 600.1 billion yuan.

Six out of the 104 banks examined by Diyi Caijing had capital adequacy ratios below the “regulatory redline,” including:

  • Guizhou Wudang Rural Commercial Bank (贵州乌当农商行) (4.85%),
  • Shandong Yanggu Rural Commercial Bank (山东阳谷农商行) (8.43%),
  • Guiyang Rural Commercial Bank (贵阳农商行) (8.64%),
  • Shandong Dongcheng Rural Commercial Bank (山东荣成农商行) (9.36%),
  • Yantai Rural Commercial Bank (烟台农商行) (9.56%),
  • Liaoyang Bank (辽阳银行) (10.49%).

The China Banking and Insurance Regulatory Commission (CBRC) currently sets a minimum capital adequacy ratio of 10.5%, as well as a minimum tier-1 capital adequacy ratio of 8.5%, and minimum core tier-1 capital adequacy ratio of 7.5%.

China’s smaller regional lenders have been a keen risk concern for financial authorities since 2019, which saw a string of major incidents involving local banks including Beijing’s forcible acquisition of Inner Mongolia’s beleaguered Baoshang Bank in May.

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