Breakingviews – China’s big banks are moving away from the economy socially
HONG KONG (Reuters Breakingviews) – China’s big banks are a bit too socially removed from their own virus-stricken economy. The Industrial and Commercial Bank of China – the world’s largest lender in terms of assets – and its towering counterparts increased their results in the first quarter even as the country’s GDP plunged 6.8%. Such crass health suggests they haven’t given enough credit to needy private companies, which could catch Beijing’s attention.
It has always been better to be one of the so-called Big Four. ICBC, Bank of China, Agricultural Bank of China, and China Construction Bank monopolize top government-owned clients, who are well-stocked with collateral and immune to default. Their collective deposit pool of 72 trillion yuan ($ 10.2 trillion), nearly 40% of China’s total, allows them to easily earn money by lending short-term funds to financial institutions. smaller, while intimidating local bond and foreign exchange markets.
This makes it easier to understand how they could be isolated from the first officially recorded recession in China; their biggest customers are too. So even though HSBC’s profit fell 48% from the first three months of the previous year, for example, China Construction Bank rose 5% and its NPL ratio remained stable at a modest 1. , 4%. As financial regulators encourage banks to roll over their loans, defaults can remain stable. The top tier is so protected that S&P Global Ratings estimates that Chinese banks could actually cut their loan loss ratios by 10 percentage points, to 190%.
Something will have to give. Small Chinese businesses were suffering even before Covid-19 hit, and the Big Four had been ordered to help because they represent most of the country’s jobs. The message does not seem to have got through. Instead, the Big Four appear to be funneling funds to small-staffed state-backed employers – which technically count as small business loans – as well as real estate speculators and financial institutions arbitrating interest rates. In the meantime, the smaller banks hold the riskiest portfolios. They start to implode; Bank of Gansu is the latest in a series of bailout requests. ICBC and its ilk may soon be forced to attempt greater exposure.
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