China Construction Bank Corp., one of China's "Big Four" banks, reported its worst first-half earnings in more than a decade. The company attributed its poor performance to the substantial increase in bad loans as businesses across the nation struggled to keep up with their financial obligations because of the economic downturn caused by the coronavirus pandemic.
From January to June, China Construction Bank's net income dropped by around 11 percent year on year to 137.6 billion yuan ($20 billion). The company, currently the world's second-largest bank by assets, reported loan-loss provisions of more than 49 percent, according to an exchange filing Sunday.
Similar to other companies in China's $45 trillion banking industry, China Construction Bank had to deal with an increasing number of bad loans as businesses struggled during the first few months of 2020. The economic downturn, the worst faced by China in more and 40 years forced hundreds of businesses to shut down - which meant that most couldn't make payments on their loans.
During the height of the health and economic crisis, China's government had asked lenders to forgo profits of more than 1.5 trillion yuan by providing easing measures to help businesses struggling with the pandemic. This included the provision of cheap funding, low- to zero-interest loans, deferred payments for existing loans and the removal of some charges and penalties.
Over the second quarter of 2020 more than 1,000 commercial banks in the country posted big profit declines as the nation's nonperforming loans hit a record 2.7 trillion yuan. The majority of the banks cut their earnings forecasts for the year by an average of 10 percentage points - with some being more optimistic of a rapid recovery during the second half of the year.
Apart from local commercial banks, international lenders are also under pressure because of a mounting number of bad loans. HSBC Holdings plc remains pessimistic of the industry's short-term outlook. The bank forecasts losses related to underperforming loans could balloon to as much as $13 billion this year. JPMorgan Chase & Co. noted that previously introduced government stimulus had made it hard to gauge the actual economic damage of the pandemic.