SHANGHAI – 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.
For the first quarter of 2020, China’s commercial banks realized net profits of 600.1 billion yuan ($84.2 billion), up 5 percent 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.
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 percent, 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.
Meanwhile, Chinese President Xi Jinping said China’s annual economic growth target could have been set around 6 percent had the new coronavirus epidemic not happened, according to state media reports.
The Chinese government on Friday omitted a gross domestic product (GDP) growth target for 2020 in its yearly work report unveiled at the start of the annual meeting of parliament, citing uncertainties brought on by the epidemic.
“If the epidemic hadn’t happened, under general circumstances, the GDP growth target would be set around 6 percent,” Xi told a parliamentary group discussion on Friday, according to state media.
That would have been in line with the goal of around 6 percent that sources told Reuters in early December before the epidemic struck.
“If we rigidly set one (GDP target), then the focus will be on strong stimulus and to hit the growth rate, which is not in line with the purpose of our economic and social development,” Xi said.
China has been reluctant to flood its economy with easy credit in recent years as a slowdown persisted, even before the coronavirus outbreak, wary of debt risks caused by massive stimulus.
In its report, the government announced a range of fiscal measures to bolster the economy, equal to about 4.1 percent of China’s GDP, according to Reuters calculations based on the fiscal stimulus announced.
Some economists had expected a larger scale of stimulus.
Differences in opinion exist in China’s policy circles between those who call for a measured approach in supporting the economy and those who urge more aggressive measures that might incur financial risks down the road. “President Xi’s comments will likely have implications for the behaviour of officials,” Goldman Sachs analysts wrote in a note.
“The doves at both central and local levels who have been advocating a growth target for fear of disappointing market expectations may well find it harder to argue their cases.”
In its work report, the government said it would make fiscal policy more proactive and be more flexible with monetary policy, while paying attention to jobs and boosting consumption.
“After the outbreak, some things were not left to us,” Xi said.
“A global recession is a foregone conclusion. As to how much and how deeply we will be affected, there is still a lot of uncertainty.”
