The pandemic, global politics, and internal turbulence in the real estate business are among the challenges facing China’s lenders this year, according to five of the country’s top banks.

In its annual results report on Wednesday, the world’s largest lender, Industrial and Commercial Bank of China (ICBC), cautioned that China confronts “shrinking demand, disturbed supply, and weakening expectations.”

In its full-year report, Agricultural Bank of China Ltd stated the same thing.

China’s banking industry is experiencing “a more challenging and severe business climate,” according to China Construction Bank Corp (CCB), the country’s second-largest lender by assets.

“The global epidemic will continue to recur, the easing policies of developed economies will be withdrawn, geopolitical conflicts will intensify,” Bank of China (BoC) (601988.SS) also said on Tuesday.

Meanwhile, the president of China’s Bank of Communications Co Ltd (BoCom) stated on Friday that the bank’s profitability would be tough to meet this year. find out more

China has been dealing with a recurrence of COVID infections in some of its largest cities, which has resulted in partial and full-scale lockdowns, according to analysts.

According to Nicholas Zhu, a financial analyst at Moody’s, the biggest impact on banks will be “increasing loan delinquencies among service industries.”

“These industries include wholesale and retail, leisure travel and other consumer discretionary services,” he added.

The banks’ warnings about the bleak prognosis came as the five firms’ full-year net profit statistics topped expectations.

ICBC’s net profit grew 10.3% to 348.3 billion yuan, exceeding expectations, while AgBank exceeded as well. The same thing happened at BoC, CCB, and BoCom.

Four of the five lenders’ non-performing loan ratios decreased, while BoC’s grew.

Corporate bad loans to the real estate sector, on the other hand, increased by 98 percent to 28.2 billion yuan at AgBank, as developers continue to benefit from last year’s strict lending laws. Real estate problematic loans at CCB increased by 50% year on year to 13.5 billion yuan.

Large and small companies have faced cash flow issues since the ‘three red lines’ debt ratio guidelines were implemented last year.

Large banks’ exposures to distressed developers like Evergrande, on the other hand, only make up a modest fraction of their loan books and shareholders’ equity, according to Zhu.

“The impact on some regional banks will be larger because of their portfolios’ higher concentration and fewer mitigants,” he added.

Except for CCB, the net interest margin, a key indicator of bank profitability, remained stable.

(Adapted from BusinessTimes.com.sg)

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