Trade Tensions Cast Shadow Even as China's Big Banks Bag More Profits

September 3, 2018


The comments come after the United State and China last week activated another round of dueling tariffs on $16 billion worth of each country’s goods. The two have threatened duties on most of the rest of their bilateral trade. Economists reckon that every $100 billion of imports hit by tariffs would cut global trade by around 0.5 percent and impact China’s economic growth in 2018 by 0.1 to 0.3 percentage points. Trade friction started by “some country” is threatening global economic stability, AgBank President Zhao Huan told a news conference on Wednesday, a day after the lender reported higher earnings for the first half of the year.


“We conducted a risk analysis of potential risk that can be caused by markets and trade frictions and made arrangement for increasing provisions,” he said, adding provisions rose 46 percent year-on-year in the first half “mainly because we were prudent.” “We remain confident in China’s economy but the impact of trade frictions on the global economy and China remains to be seen. So we are making preparation for potential risks when we still have the ability to do so.” For the six months to June, AgBank’s results were underpinned by an improvement in both margins and bad loans ratio.


A similar pattern emerged from the interim results of China Construction Bank Corp (CCB) (601939.SS) (0939.HK) and Bank of China Ltd (BoC) (601988.SS) (3988.HK) - the country’s second- and fourth-biggest lenders. Their balance sheets were also propped up by diverse revenue sources and strong capital buffers that gave them an edge over smaller peers which have been hit by China’s crackdown on risk. “The results of the top four banks are not enough for investors to regain confidence in the broader banking sector because the economy is going to slow in the second half,” said Steven Leung, Hong Kong-based sales director, UOB Kay Hian. “The Big Four banks mostly lend to the local government bodies and government-linked enterprises, so they will be able to manage the bad debt situation. But that’s not true for the entire banking sector.”


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