The largest state-owned banks of the Chinese Communist Party (CCP) recorded historic drops in profits, the main reason being the devastating effect of bad debts caused by the CCP Virus pandemic. The CCP forced them to make the necessary efforts to support an economy in recession.
Zeng Gang, deputy director of China’s National Finance and Development Institution, told Bloomberg that the decline in the banking sector’s profitability would continue for at least the next two quarters. He also pointed out that the possible reduction in loan interest rates and the increase in default rates will further increase financial risks.
Since the beginning of the pandemic, CCP officials have required lending banks to forgo 1.5 trillion yuan ($218 billion) in profits, forcing them to provide cheap financing, defer payments and increase loans to small businesses struggling with the economic effects of the virus.
While delinquencies during the first quarter increased exponentially, the banks in China, pressured by the regime, had to increase loans and advances to businesses by 7 percent to 10 percent in a desperate attempt to recover the economy.
A report presented by the ICBC, one of the largest Chinese banks in the world, said the following about the forecast for the second semester: “The global economy faces unfavorable conditions that include significant contractions in global trade and investment, volatile financial markets, limitations in interactions between countries, disruption of globalization and high geopolitical tensions. An explosive worldwide combo, caused by the effects of the CCP virus, limiting any attempt to reactivate the Chinese economy.
According to the Zero Hedge, under the Chinese regime, more than 1,000 banks operate, which registered a fall of 24 percent in profits in the second quarter. At the same time, non-performing loans reached a record of 2,700 billion yuan ($395 billion). Citigroup Inc. forecasts that major Chinese banks are expected to suffer a 13 percent drop in profits this year.
According to other slightly more pessimistic data, such as that provided by Shujin Chen, an analyst at Jefferies, the profits of Chinese banks could fall between 20 percent and 25 percent in 2020, according to Bloomberg. Such a scenario would damage bank capital by preventing dividends’ payment and could worsen national financial stability.
The worldwide economic crisis caused by the devastating effects of the CCP Virus could only be compared to debacles like the Great Depression of 1930 or World War II. The blockades imposed by the governments generated an abrupt fall in consumption that led to the massive bankruptcy of millions of companies that had to leave a large part of the families of the entire world without work and any sources of income.
If to this reality, we add state interventions such as those that the CCP is imposing on the banks—abusing its—the results in the local economies could be catastrophic.