China’s five largest banks, namely Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, and Bank of Communications, have posted their biggest profit slumps at least in a decade due to the coronavirus consequences. They reported drops in profit by 10%.
In August, China's banks released their earnings reports for the first six months of the year. As it turned out, the latest results came as a disappointment for market participants showing the worst in the last 10 years. First of all, such a sharp decline in profit was due to the need to create additional funds that can cover possible losses on loans due to the reduced solvency of borrowers. Besides, the government lowered the interest rates below the market level for the main types of loans in order to support businesses and people amid the pandemic. Thereby the authority put the largest banks on the front-line of helping alleviate the economic slump in the national economy during the corona crisis. Reportedly, China’s government asked financial institutions to sacrifice 1.6 trillion yuan ($219 billion) in profits this year to help companies survive the crisis. In other words, banks did not receive any support from the government but they were obliged to help other institutions withstand the coronavirus blow.
Despite the fact that Chinese banks are voicing their concerns about the dropping profit, China's government has not changed its decision regarding low lending rates. All five megabanks are bracing for further losses. According to the forecast of the International Monetary Fund, China's GDP will grow by 1% at the end of the year, capping its lowest result for the last 40 years.
