Official data points to a plunge in the net profits of Chinese commercial banks in the first half of 2020, following a push by regulators for lenders to “sacrifice” earnings for the sake of the real economy.
In the first half of 2020 commercial banks 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 YoY growth rate also marked a deceleration of 15.86 percentage points compared to the same period last year.
A CBIRC spokesperson said that despite the profit plunge the performance of the commercial banking sector remained steady, with a liquidity coverage ratio of 142.4% as of the end of June; a provisions coverage ratio of 182.4%, and a capital adequacy ratio of 14.21%.
The spokesperson imputed the drop in banking sector to two reasons:
- An ongoing transfer of banking sector profits to the real economy, which CBIRC puts at over 870 billion yuan for the first seven months of the year.
- Expansion in the provisions and non-performing loans disposal capability.
In the first half of the year Chinese banking sector financial institutions disposed of 1.1 trillion yuan in non-performing loans, for an increase of 168.9 billion yuan compared to the same period last year.
Chinese Premier Li Keqiang called for banks to “sacrifice” 1.5 trillion yuan in their 2020 profits at a State Council meeting on 17 June, in order to reduce the financing costs of small businesses in China.
The profit sacrifice is expected to be around 75% of the full year net profits of China’s commercial banking sector in 2019, which were around 2 trillion yuan according to data from the China Banking and Insurance Regulatory Commission (CBIRC).