BEIJING Top tier Chinese banks preparing to respond to Beijings call to boost lending to the real economy and debtladen property sector are set to face a squeeze on their profit margins in the second half bankers and analysts said

Five of Chinas biggest stateowned banks posted modest gains in profits in the second quarter Four of the banks except for Bank of China however reported falling net interest margins a key gauge of bank profitability

The dour outlook for Chinese banks comes as the worlds secondlargest economy narrowly avoided contracting in the second quarter as widespread COVID19 lockdowns and the slumping property sector badly damaged consumer and business confidence

With economic momentum cooling Beijing has unveiled a string of interest rate cuts in the last few months and has been stepping up pressure on lenders with new instructions to grow loans

Lower asset yields as a result of reduced benchmark interest rates and continuing competition for deposits a key source of funding for Chinese banks means interest margins of banks will see greater pressure analysts said

Banks have been asked by the Chinese government to support the countrys cashstrapped property sector which accounts for nearly a quarter of gross domestic product

Now they are told to support because the sector is going to need help and I think there is no worse time because interest rates are on the way down and net interest margin has narrowed the banks have much less leeway said Alicia Garca Herrero chief economist for Asia Pacific at Natixis

Narrower bet interest margins how much banks earn in interest from loans compared to what they pay out in interest on deposits will affect their profitability leading to lower dividends for shareholders and weakening market confidence
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Source :- CNA