Chinese bank profit growth expected to rebound to 2-3% in 2021 (report)

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FILE PHOTO: A security guard wearing a mask following the coronavirus disease (COVID-19) outbreak is seen near the Bank of China in Beijing, China October 19, 2020. REUTERS / Tingshu Wang

BEIJING (Reuters) – China’s banking sector is expected to post annual profit growth of 2-3% in 2021 after an expected 7% decline this year due to the global pandemic, the Bank of China, the fourth largest, said the country’s lender, in a report on Monday.

The recovery is likely as banks will have to make fewer sacrifices “to support the real economy” next year, with the allowance for loan losses rising “back to normal levels,” the report said, adding that banks had set aside enough to digest this. Bad debts of the year in 2020.

China’s largest lenders have suffered their worst drop in first-half profits this year since going public over a decade ago, and they have tightened loan loss provisions throughout the first third quarter of the year. year, as Beijing urged them to step up and lend to reported sectors.

The report says banks’ credit risks are expected to continue to accumulate in 2021, as more embittered debt is exposed as the support measures introduced due to the pandemic begin to expire.

The industry-wide bad debt ratio is expected to reach 2-2.2% by the end of 2021 and will be higher for banks in small towns and rural areas where economic growth is expected to slow, the report says. .

The NPL ratio of Chinese commercial banks stood at 1.96% at the end of September, according to public data.

“The non-credit investments of some banks will also face relatively significant risks in 2021”, according to the report, “because these investments have mainly flowed into real estate projects and financing vehicles of local authorities, and these risks are contagious” .

Reporting by Cheng Leng, Zhang Yan and Ryan Woo; Editing by Simon Cameron-Moore

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