According to the data on the main banking regulatory indicators released by the Bancassurance Regulatory Commission on Aug. 10, commercial banks achieved a cumulative net profit of 1 trillion yuan in the first half of the year, down 9.4% from a year earlier, with an average capital profit margin of 10.35%. The average asset profit margin of commercial banks was 0.83%, down 0.15 percentage points from the end of the previous quarter.

Unlike the previous continued positive growth in banking net profit, it is rare that net profit fell 9.4% in the first half of this year compared with the same period a year earlier. However, regulation has been unveiled long before, and it has been mentioned many times that banks will be urged to maintain reasonable profit growth, make solid profits, make good use of profits, fill the provision gap in a timely manner, fully cover risk losses, appropriately reduce dividends, and do not increase bonuses. More limited profits will be used to replenish capital and improve risk resistance.

The banking analysts interviewed believe that the main banking regulatory indicators in the third quarter will continue the trend of the second quarter, and the difference in profit growth before and after provisions may further widen. However, as the epidemic has increased the uncertainty of economic and financial operation, this idea of using abundance to make up for apology is a rainy day for the possible deterioration of asset quality in the banking industry, so it is necessary for the banking industry to further improve its risk compensation capacity.

Why is the growth rate of net profit declining?

Why has the growth rate of net profit changed so much, from nearly 6% of net profit in the first quarter to 9.4% negative growth in the first half of the year? Wang Yifeng, chief banking analyst at Everbright Securities, told brokerage China that the decline in net profit growth reflected increased recognition and disposal of non-performing loans and increased loan provisions in the banking sector in the second quarter.

The relevant regulatory indicators of asset quality and risk offset support this trend. Specifically, in terms of asset quality, the banking industry really exposes non-performing assets and increases the recognition of non-performing assets. At the end of the second quarter, the balance of non-performing loans of commercial banks (legal person caliber, the same below) was 2.74 trillion yuan, an increase of 124.3 billion yuan over the end of the previous quarter, and the non-performing loan ratio of commercial banks was 1.94%, an increase of 0.03% over the end of the previous quarter. It is worth noting that the month-on-month decline in the balance and proportion of concerned loans at the end of the second quarter also reflects the increase in the recognition of non-performing loans.

In terms of risk offset capacity, at the end of the second quarter, the balance of provision for loan losses of commercial banks was 5 trillion yuan, an increase of 206 billion yuan over the end of the previous quarter. Although affected by the expansion of the denominator, the provision coverage rate decreased by 0.80 percentage points from the previous month, but still reached 182.4%, significantly higher than the regulatory requirements.

Wang Yifeng said that the increased provision reflects dynamic provision arrangements under the expected loss method under the new financial instruments accounting standards (IFRS 9), as well as preventive measures for non-credit assets, off-balance sheet problem assets and other preventive measures.

Except that the net profit of private banks and foreign banks increased in the first half of the year compared with the same period last year, the net profits of other types of banks decreased year-on-year, and the decline was different. Large state-owned banks, joint-stock banks, urban commercial banks and rural commercial banks decreased by 12.04%, 8.49%, 2.06% and 11.42% respectively compared with the same period last year.

Bank profit growth in the third quarter may be under further pressure

As for the negative growth of net profit in the first half of the year, the market has been within expectations, and regulators have repeatedly mentioned that banks should fully cover risk losses and maintain reasonable profit growth. Many viewpoints believe that due to the impact of the epidemic, the downward pressure on the economy has increased, so that the balance and rate of non-performing assets in the banking industry have returned to "double rise" since the beginning of this year, and non-performing assets in the banking industry will show a phased upward trend in the future.

A spokesman for the Bancassurance Regulatory Commission also said recently that the marginal operation of the domestic economy has improved, but it has not yet returned to normal. The overseas epidemic situation has not been effectively controlled, and the world economy is facing a deep recession. Some industries and enterprises seriously affected by the epidemic are under great operating pressure, and their repayment ability has declined.

Although we have taken hedging policy measures such as temporary postponement of principal and interest payment, borrowing the new to repay the old, extending the period, and modifying the loan contract, the problems of poorly managed enterprises have not been fundamentally solved, and there is still a greater risk of default in the future. Some banks, enterprises and local governments are unwilling to take the initiative to expose bad things, and some even deliberately whitewash and conceal them. Generally speaking, the current non-performing loans have not been fully exposed, there is a greater upward pressure.

"We must be prepared for a big rebound in non-performing loans. A spokesman for the CBIC once said:

First, it is necessary to further classify assets. Strictly distinguish between enterprises with difficulties affected by the epidemic and enterprises with high operational risks. For the latter, assets are classified strictly in accordance with the provisions, and those that meet the bad standards must be classified as bad. Other off-balance sheet and off-balance sheet assets that bear credit risk should also be classified according to the classification standard.

Second, we should continue to step up efforts to deal with them. The amount of non-performing assets to be disposed of this year should be reasonably increased on the basis of last year, and all the resources released by reducing the coverage rate of provisions must be used for the disposal of non-performing assets.

Third, it is necessary to broaden the channels for the disposal of non-performing assets. Comprehensive use of write-off, settlement, batch transfer, debt-to-equity and other means, so that it should be checked and handled. Carry out batch disposal of non-performing assets on a pilot basis, and gradually popularize it after summing up experience.

The financial system benefits the real economy and monetary policy to improve the "accessibility" of the real economy is still the main tone of the operation of the financial sector, in this case, the price of industry loans will still fall slightly, thus driving revenue growth down steadily.

In addition to the risk of further deterioration of on-balance sheet credit assets, the return of off-balance sheet assets during the transition period of the new rules will also crowd out on-balance sheet resources to a certain extent.

Wang Yifeng said that looking forward to the performance of the banking industry in the second half of the year, the financial system will continue to benefit the real economy and improve the "accessibility" of monetary policy to the real economy. Accordingly, the price of banking loans will still decline slightly, thus driving revenue growth to continue to decline.

From the perspective of profit growth, after concentrated risk disposal in the second quarter, the important task in the second half of the year is that after the transition period of the new regulations on asset management is extended, the process of rectification and reform of existing assets will be accelerated somewhat, which will occupy resources such as capital on the balance sheet and provisions for loan losses, so it is necessary to make preparations in advance. At the same time, the provision for non-credit assets has not been sufficient in the past, and will continue to be increased in the future.

Wen Bin, chief researcher of China Minsheng Banking Corp, also said that as the economy gradually improves, the central bank will cherish the normal monetary policy space more, and the policy interest rate and the loan market quoted rate (LPR) may remain unchanged in the next month or two, but the bank's real lending rate will continue to decline to achieve benefits to the real economy, so the net interest margin of the banking industry will further narrow in the third quarter.

"the follow-up revenue and profit pressure of banks will still be greater, and the difference in profit growth before and after provisions may further widen compared with the second quarter. "Wang Yifeng said.