Morningstar among analysts saying Chinese banks’ earnings under pressure in fourth quarter due to property crisis, low consumer confidence

Money not reaching the real economy because of pessimism among businesses and consumers about China’s economy, The Hong Kong Institute of Financial Analysts and Professional Commentators’ Kenny Tang says

Banks’ NPLs ‘stable’ and ‘manageable’, Everbright Securities and Morningstar analysts say

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Beijing’s central business district. China’s banks are expected to roll out further measures, including interest rate cuts and existing mortgage rate repricing, to support the economy and restore consumer confidence. Photo: Reuters

Yuke Xiein BeijingandJiaxing Liin Hong Kong

Published: 5:50pm, 10 Oct 2023Updated: 6:19pm, 10 Oct 2023

China’s big banks are likely to face further pressure on their revenues and interest margins in the fourth quarter, as the world’s second-largest economy battles an ongoing property sector crisis and low consumer confidence, analysts said.

Consumption has not bounced back as quickly as expected after Beijing scrapped its zero-Covid policies last year, and loan growth is still under pressure, said Kenny Tang, chairman of industry body The Hong Kong Institute of Financial Analysts and Professional Commentators.

“Right now, even though there is decent growth in private financing, the M2 money supply and new loans on the Chinese mainland, the problem is that the money has not reached the real economy,” he said. “This is because businesses and consumers are still quite pessimistic about the outlook for China’s economy.”

M2 refers to the entire stock of liquid assets in an economy, including cash and current account deposits. It is a key liquidity gauge and the intermediate target of the Chinese central bank’s monetary policy.

China’s total household loans increased by 392 billion yuan (US$54.7 billion) in August, driven by an increase of 232 billion yuan in short-term loans and 160 billion yuan in medium to long-term loans, respectively. Excluding single-month fluctuations, household loan growth weakened to 6.8 per cent year on year, Morningstar analysts said in a report this week.

“Recent sluggish data, including household disposable income, consumer confidence and the unemployment rate, also pointed to a continued softness in consumption credit demand,” the report said.