China’s slowing economy has made a dent on the country’s largest banks, which posted meager growth for the half year amid higher provisioning for bad loans and tightening margins.
The Industrial and Commercial Bank of China on Thursday said net profit for the half year rose just 0.7% from the corresponding period in 2014, after the state-owned bank posted a loan-loss provision of RMB17.8 billion (U.S. $ 2.79 billion), 74% higher than last year.
Likewise, Bank of China, Agricultural Bank of China, and Bank of Communications also reported weak earnings due to a spike in bad loans. Margins are also being squeezed, and all of the banks reported lower net interest margins as The People’s Bank of China — the country’s central bank — has cut interest rates five times since November.
The banks’ margins will face further pressure as the central bank likely cuts rates even more due to the country’s slowing economy, according to Reuters.
“Recent economic indicators show that even the Chinese growth target of about 7 percent may be at risk,” Reuters wrote. “Turbulence in China’s stock markets and the recent devaluation of the yuan may also end up pushing more manufacturers, construction firms, and retailers into delaying or defaulting on loan repayments.”