Banks faced tough challenges in first half

China's listed banks faced tough challenges in profitability and credit quality in the first half to the year because of the COVID-19 pandemic, according to an industry report.

Amid a complicated economic situation, listed banks had increased provisions to strengthen their risk reserves, leading to a 9.05 percent year-on-year decrease in net profit of 901 billion yuan (US$132.1 billion), auditing firm PricewaterhouseCoopers said, while profit excluding those provisions had increased by 6.52 percent year on year.

The study was based on the interim reports of 52 A-share and/or H-share listed banks, with a sample size equivalent to 82.6 percent of the total assets and 87.8 percent of the net profit of Chinese commercial banks.

In the first six month, the loan prime rate declined, which coincided with the existing loans’ shift toward that benchmark. This had led the loan and bond investment yields of listed banks to decline, and the overall net interest spread and net interest margin narrowed.

The rate of fall in yield on interest-generating assets of all listed banks was more than the rate of decline in cost on interest-bearing liabilities, PwC noted.

Affected by the COVID-19 pandemic, the fee reduction and concession policy implementation, the overall net fee and commission income growth of listed banks slowed down compared with a year before.

Under a moderately loosened monetary policy environment, the assets and liabilities of listed banks have grown rapidly. As of the end of June, the growth rates of total assets and total liabilities were 7.65 percent and 7.74 percent respectively, which were higher than that in the same period of last year.

Michael Hu, PwC China financial services partner, said: “Thanks to the improvement in operations and risk control capabilities over the years, listed banks have weathered the storm smoothly with their assets and liabilities continuing to grow.”

 However, due to the impact of the pandemic, the non-performing loans ratio of most listed banks has risen, and there will be greater pressure on asset quality in the future, he said.

Non-performing amounts and overdue amounts increased by around 10.2 percent and 4.5 percent from the end of last year to 1.74 trillion yuan and 1.91 trillion yuan respectively.