FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 17 May 2015

The Challenge of China's Sliding Bank Profits

Written by , GEI Associate

The People's Bank of China cut benchmark interest rate again by 25 basis points to 5.1%. By now, PBOC has cut interest rate and reserve requirement ratio five times in six months.

However, the monetary easing does not seem effective. Although the interest rate has been cut by a total of 75 basis points, China's economy is still facing large downward pressure. As the latest trade data shows, China's exports unexpectedly fell 6.4% from a year earlier. While April is usually a strong month for economy, disappointing trade data intensifies the concern about China's economy.

There are many problems, such as high borrowing cost, that influence the effectiveness of monetary easing. One important reason that hindered monetary easing from benefiting the real economy is sliding bank profits. As many Chinese companies guaranteed loans taken out by other companies in previous years, bankruptcy has triggered a chain of defaults. According to the China Banking Regulatory Commission, nonperforming loans surged 140 billion yuan ($22.6 billion) from the beginning of the year to 982.5 billion yuan as of March 31, the biggest quarterly jump in more than a decade.

As a result, banks' profits decreased significantly. Compared with the double-digit growth rate typically seen in previous years, China's top five state-owned banks all saw their first-quarter profit grow less than 2%. Bank of China, for example, has only 1.05% profit growth. Therefore, considering profits, Chinese banks are cautious about making loans, and would not pass on lower interest rates to borrowers. As the PBOC said, it does not expect banks to pay savers the maximum deposit rate allowed by authorities. So even though the PBOC has cut both interest rate and RRR (required reserve ratio) several times, credit flow to the sectors that need funds just usn't happening.

However, it is widely believed that China's economy remains promising. While rate cutting might have limited effect for stimulating demand, several large projects including those related to the Belt and Road Initiative (New Silk Road Economic Belt) in coming months would certainly be an effective GDP boost.

Click here for Historical News Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Contributors


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Comments on Feyerabend’s ‘Against Method’, Part III
Taking a Wrench to Healthcare
News Blog
Infographic Of The Day: Commodity Update, Is The Summer Slump Over
Early Headlines: Asia Stocks Mixed, Oil Mixed, Voting Fraud, Pres. Forecast Little Changed, CETA Not Dead, Generous Iraqis, Terrorists In Pakistan, Duterte Wants Divorce From US And More
October 24, 2016 Weather and Climate Report - La Nina / El Nino?
Most Read Articles Last Week Ending 22 October
Londoners Most Uneasy About Chatting To Strangers
Average Gasoline Prices for Week Ending 24 October 2016 Now Higher Than One Year Ago
Earnings And Economic Reports: Week Starting 24 October 2016
New Findings: Anxiety Is Linked To Death From Cancer In Men
Nearly 1 In 6 European Adults Is Considered Obese
Acupuncture Is Useless
September 2016 CFNAI Super Index Moving Average Declines
Consequences Of Rising Income Inequality
America's Most Competitive Renters: Why Many Are Choosing To Rent
Investing Blog
Slow Motion Torture
The Week Ahead: How Long For This Trading Range?
Opinion Blog
What Triggers Collapse?
The Beer Goggles Stock Market
Precious Metals Blog
Preparing For Post-Election Social Unrest
Live Markets
24Oct2016 Market Close: Wall Street Closes Higher, Quietly On Low Volume, Crude Back Up, US Dollar Trading At Resistance, Investors Remain Skeptical On Continuing Bullish Market
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

Crowdfunding ....



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved