Chinese banks' profit growth seen recovering to 2-3% in 2021: report

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 likely to show annual profit growth of 2-3% in 2021 after an expected 7% fall this year due to hit of the global pandemic, Bank of China, the country’s fourth largest lender, said 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 loan-loss provision boost “back to normal levels”, the report said, adding that banks had put enough aside to digest this year’s bad loans in 2020.

China’s largest lenders this year suffered their worst first half profit drop since they listed on the stock market more than a decade ago, and they boosted loan-loss provisions throughout the first third quarters of the year as Beijing urged them to step up and lend to flagging sectors.

The report said banks’ credit risks are expected to keep accumulating in 2021, as more soured debts become exposed as support measures introduced because of the pandemic begin to expire.

The sector-wide bad loan ratio is likely to reach 2-2.2% by the end of 2021, and will be higher for banks in small cities and rural areas where economic growth is expected to slow, according to the report.

The non-performing loan ratio of Chinese commercial banks was 1.96% at the end of September, public data showed.

“The non-credit investment at some banks will also face relatively big risks in 2021,” according to the report, “As such investments have mainly flowed into property projects and local government financing vehicles, and such risks are contagious.”

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