China’s banks lost billions in defaulted loans

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Five of ChinaThe country’s largest government lenders reported their biggest loss of profits in at least a decade as the number of defaulted loans skyrocketed since the COVID-19 outbreak.

CNBC reported that the Bank of China, Bank of Communications, China Construction Bank, Agricultural Bank of China, and Industrial and Commercial Bank of China saw a year-over-year decrease of at least 10 percent from January to June.

In the first two quarters of the year, these lenders also reserved more cash in anticipation of impending loan defaults. In addition, the Beijing government has urged banks to forfeit 1.5 trillion yuan ($ 219 billion) in profits by lowering lending rates and deferring loan repayments to help businesses, CNBC noted.

The action has put these banks at the forefront of efforts in the country to mitigate the impact of coronavirus on businesses and families.

“The banks were asked to perform [a] National Service, ”said Jason Tan, research analyst at CreditSights, the New York-based research firm “Squawk Box Asia” on Monday (August 31st). “You have been asked to support the economy at the expense of your own operational strength.”

Still, Tan noted that the overall size of the losses is unclear as more losses are expected from July to December – and possibly in the first half of 2021 when credit moratoriums end.

“The brunt of the pressure on asset quality may not have arrived because of the ongoing moratorium on loan repayment and interest payments,” Tan told the network.

While a Morgan Stanley earnings report found that midsize Chinese banks outperformed their larger competitors by up to 27 percent in the second quarter, analysts at Jefferies Group LLC, the New York investment bank and financial services company, said Chinese banks are unlikely to that dividends are paid after cash has been set aside for potential losses.

Last week, Hong Hao, executive director of BOCOM International, a subsidiary of Bank of Communications, told Reuters that the pandemic has hit small businesses hard and the balance sheets won’t be nice. “Banks have had it easy in the past, but now there are many signs that they are under a lot of pressure,” he said.

As early as April, China’s banks were faced with mountains of bad debt. In the face of the crisis, regulators let them be more lenient in classifying bad debts. Meanwhile, Lender allowed small businesses to defer payments and transfer debts.

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