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China economy
BusinessBanking & Finance

China Construction Bank posts worst earnings in more than a decade on bad loan surge

  • Net income fell 11 per cent to 137.6 billion yuan (US$20 billion) in the first half from 154.2 billion yuan a year earlier, according to exchange filing
  • Stock has declined 16 per cent this year, deeper than the 9.8 per cent loss in the Hang Seng Index

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China Construction Bank Corp logo is seen on its headquarters in Beijing. Photo: Reuters
Bloomberg
China Construction Bank, the world’s second-largest lender by assets, reported its worst earnings in more than a decade as a cascade of loans to businesses across China are going bad.
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Net income fell 11 per cent to 137.6 billion yuan (US$20 billion) in the six months through June from 154.2 billion yuan a year earlier, the Beijing-based lender said in an exchange filing on Sunday. Loan loss provisions jumped 49 per cent.

China’s US$45 trillion banking system has been put on the front-line of helping alleviate the worst economic slump in 40 years, triggered by a large scale shutdown due to the virus outbreak. Investors were put on notice from the slump after Chinese authorities asked lenders to forgo 1.5 trillion yuan in profit by providing cheap funding, deferring payments and increasing lending to small businesses struggling with the pandemic.

In total, the nation’s more than 1,000 commercial banks posted a 24 per cent decline in second quarter profits, with non-performing loans (NPLs) hitting a record 2.7 trillion yuan. Citigroup last month slashed 2020 to 2022 earnings forecasts for major Chinese banks by more than 10 percentage points and expects them to suffer a 13 per cent drop in profit this year.

Chinese banks face another tough year as the viral outbreak hampered efforts to recovery from months of protests and vandalism in Hong Kong for most of 2019. Photo: Reuters
Chinese banks face another tough year as the viral outbreak hampered efforts to recovery from months of protests and vandalism in Hong Kong for most of 2019. Photo: Reuters
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“Under mounting political pressure, China banks not only have had to further cut loan yields to subsidise the real economy, but also need to accelerate countercyclical provisioning and adopt more conservative NPL assumptions in setting provisions,” Citigroup analysts led by Judy Zhang wrote. “The potential negative earnings growth will overhang the China banks’ near-term share performance.”

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