China’s biggest state banks stated the effect of constraints on movement imposed to stem the spread of the coronavirus could pull down asset quality as debtors wrestle to repay loans. However, they’re likely big enough to weather any fallout.
The feedback comes as four of the nation’s largest state-financed lenders recorded estimate-beating fourth-quarter revenue; however, they bode ill for smaller lenders, who have less capital reserves and might call on fewer states borrowers.
The pandemic starting at the end of last year has left many airways, hotels and different companies combating to survive after government countermeasures all but paralyzed financial activity for over a month.
A chronic pandemic might break the upward trend with mounting soured debt and contracting net interest margins (NIM), a gauge of banks’ profitability, senior bankers stated.
ICBC President Gu Shu likewise stated the pandemic “will put some strain on our asset quality,” however, that the lender is confident in its overall scenario.
Big-bank confidence is down partially to plush capital reserves, which can help cushion the impact of a slowdown.
The provision coverage ratio at ICBC was 212.53% at the end of December, in contrast with 198.09% three months prior. CCB’s ratio surged to 227.56% from 218.28% in the same interval.
China’s largest banks have benefited from preferential government policies resembling support to sort out bad loans. They lend to the largest state-owned companies that are less volatile and which helps buoy profit even during economic fallout.