Interest Rate Cuts Behind Plunge in Chinese Banking Sector Profits: Central Bank Official

A senior official from the People’s Bank of China (PBOC) has highlighted the impact of interest rates cuts as the key factor behind a recent plunge in Chinese banking sector profits.

Government data released on 17 August indicates that in the first seven months of 2020 China saw a reduction in the “financing costs burden” for market actors of over 870 billion yuan, following the implementation of measures including interest rate cuts, fee reductions and extensions on repayments for loans.

In the first half of 2020 com­mer­cial banks in China also posted net prof­its of one tril­lion yuan, for a YoY de­cline of 9.4%, ac­cord­ing to data from the China Bank­ing and In­sur­ance Reg­u­la­tory Com­mis­sion (CBIRC). 

The data comes following a call from Premier Li Keqiang in June for Chinese banks to “sacrifice” 1.5 trillion yuan in profits this year in or­der to im­prove fi­nan­cial in­clu­sion and keep China’s econ­omy on an even keel in the wake of the COVID-19 pan­demic. 

The 870 billion yuan figure means that China’s financial system has already fulfilled 58% of this profit transfer target for 2020.

Liu Guoqiang (孙国峰), deputy governor of the People’s Bank of China (PBOC), said that the 870 billion yuan reduction in financing costs was comprised in particular of three parts:

1. 470 billion yuan from interest rate reductions, including a 354 billion yuan reduction as the result of guidance via the loan prime rate (LPR), a further 37 billion yuan from the preferential interest rates provided by re-loan and re-discount policies, and 79 billion yuan from declines in bond rates.
2. 133.5 billion yuan from financial inclusion micro-and-small enterprise (MSE) credit support policies (approx. 12 billion yuan) and deferrals on MSE loan payments (approx. 121.5 billion yuan).
3. 204.5 billion yuan from reductions to services fees.
4. 66 billion yuan from support for enterprise restructuring and debt-equity swaps.

Liu said that during the period from August to December financial regulators will continue to push through reductions in the financing costs of market actors of more than 600 billion yuan, to achieve a full year reduction of 1.5 trillion yuan.

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