Chinese banks must prepare for an increase in non-performing regulatory loans

FILE PHOTO: people wear protective masks following an outbreak of the new coronavirus disease (COVID-19), in the Lujiazui financial district in Shanghai, China, 19 March 2020. REUTERS / Aly Song /

BEIJING (Reuters) – Chinese banks should prepare for a big leap in suffering from the economic pain induced by the coronavirus, the financial regulator said today, noting that the deterioration of asset quality in some small and medium-sized financial institutions size is accelerating.

The Chinese Banking and Insurance Regulatory Commission said in a statement that earnings growth would slow down sharply in some banks while others could see profits decline.

If banks were to make the minimum amount of provisions for their impaired loans, which some have yet to make, profits for the sector would drop by over 350 billion yuan ($ 50 billion), the note said.

Commission data show that Chinese commercial banks posted earnings of 2 trillion yuan in 2019, an increase of 8.9% over the previous year.

Non-performing loans in the sector totaled 3.6 trillion yuan at the end of June, while the bad loans ratio rose to 2.10%, 0.08 percentage points higher than at the beginning of the year, the note said.

Small businesses have been allowed to delay loan and interest payments and the central government has invited the country’s financial institutions to sacrifice 1.5 trillion yuan in profits this year to help counteract the economic impact of the virus on businesses. .

Beijing has also allowed local governments to use the proceeds of special bonds to replenish the capital of some small banks.

The regulator warned of illegal flows of funds in the real estate and stock market sector and of new risks in the shadow banking sector without elaboration.

It also promised to strengthen capital flow regulation and suppress speculation in the financial sector to prevent asset bubbles.

Reporting by Lusha Zhang, Cheng Leng and Ryan Woo; Editing by Edwina Gibbs

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