China’s largest banks are warning of a hit to profitability and asset quality this year as they comply with government orders to extend low-cost loans to companies affected by the coronavirus outbreak, reported the Financial Times.
Since the outbreak of coronavirus in January, Beijing has ordered the country’s banks to step up their assistance to the national recovery effort by continuing to lend to troubled companies while also lowering interest rates.
“This is the market concern for the big banks: the so-called national service they have to do,” said May Yan, head of greater China financials equity research at UBS. “They are required to keep bringing down the lending rate but this is not very commercial for the shareholders.”
The People’s Bank of China has already cut the benchmark lending rate in order to help struggling companies borrow at reduced costs, and analysts expect it to lower the rate several more times this year, further squeezing net interest margins — a key gauge of banks’ profitability.