Chinese banks could post flat or falling profits in 2020

© Reuters. FILE PHOTO: People wearing face masks walk past the headquarters of PBOC, where the Chinese national flag flies at half mast

SHANGHAI (Reuters) – Chinese lenders could post flat or even falling profits in 2020 despite earnings growth in the first quarter, as the coronavirus outbreak brings difficulties to the economy, the country’s central bank said in an article on Sunday.

For the first quarter of 2020, China’s commercial banks realized net profits of 600.1 billion yuan ($84.2 billion), up 5% year-on-year, mainly due to the expansion of banks’ assets and lower management costs, according to an article by the research bureau of the People’s Bank of China (OTC:).

The possibility could not be ruled out that banks could log zero or even negative profit growth within 2020, due to mounting bad loans and a fast draining of cash buffers, as the difficulties in the real economy spills over into the financial area, the PBOC warned in the article.

China’s banks need to further support the real economy which faces various challenges due to the coronavirus outbreak, in particular small and micro enterprises, as there is some room for banks to surrender part of their healthy profits, the article said.

In an effort to cushion the economy, small and midsize companies can delay paying loans and interest by a further nine months, through March 2021, and lending to SMEs by big commercial banks should grow more than 40%, Premier Li Keqiang said Friday.

In March, China’s largest state banks said the impact of restrictions on movement imposed to slow the spread of the coronavirus could pull down asset quality as borrowers struggle to repay loans.

($1 = 7.1269 renminbi)

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