Chinese banks set to report first-half profit growth, as infrastructure lending cushions impact of Covid-19 lockdowns
- The six leading state-owned banks will begin releasing their first-half results over the next two weeks
- Banks should be able to shrug off the impact of sluggish loan demand from small businesses and property sector woes, Jefferies analyst says
Chinese banks are set to report about 5 per cent year-on-year profit growth for the first half of 2022, as sustained loan growth to support infrastructure and state companies is expected to offset weaker retail loan demand caused by Covid-19 lockdowns in the second quarter, analysts said.
“State-owned banks have responded to the government by lending more to support infrastructure projects and state enterprises. Therefore, these banks should be able to report about 5 per cent growth, shrugging off the impact from sluggish loan demand from small businesses and consumers,” said Chen Shujin, an analyst at Jefferies.
State-owned commercial banks have also mirrored the move by policy lenders, by extending new loans to projects and specific corporate sectors such as high-end manufacturing, analysts said.
“Large state-owned banks have traditionally been more focused on loans to [state-owned] enterprises and companies,” said DBS analyst Lu Manyi, who also pointed to an about 5 per cent growth in profits. “Their loan books are therefore less sensitive to the disruption caused by lockdown measures on retail loans, compared to smaller banks.”
Banks’ new yuan loans in the first half of this year rose to a record 13.68 trillion yuan, data from China’s central bank shows. They are also likely to report that the quality of their assets has been largely unaffected by the woes of China’s property sector.
The banking sector’s non-performing loan (NPL) ratio stood at 1.67 per cent as of June end, compared to 1.69 per cent at the end of March, data from the China Banking and Insurance Regulatory Commission shows. The sector as a whole saw its net profit rise by 7.1 per cent in the first half from the same period a year ago.
Jefferies analyst Chen said that the outstanding mortgage balance from all the suspended projects would amount to 400 billion yuan – or just 0.2 per cent of the banking sector’s loan book. She, therefore, expected the boycott to not pose a significant risk to banks.
The bigger risk, however, would be banks’ lending to property developers, said Hans Fan, head of China financials research at CLSA, and this might show up in the second-half of this year. He, however, expected Chinese banks will report about 6 per cent growth for the full year and did not provide a midyear forecast.
The NPL ratios of property development loans among Hong Kong-listed Chinese banks already rose to 3.1 per cent in 2021, from 1.8 per cent a year ago. Fan said that these would climb to “high single digits” by the end of this year.
“The risk is that some Chinese banks are still in the process of recognising more bad debt from property developers in their financial statements,” he said, adding that such a level was still manageable for the banks.