Profit Growth Slips at Chinese Banks
- The impact of a Summer Cash Squeeze Continued to be Felt
The significant impact felt by major Banks in China is strictly due to the narrowing effect of what banks charge for loans relative to their costs to a large extent. According to Beijing news, profit growth at China's major banks continued to decline in the third quarter as the combining result of maturing Chinese economy and interest-rate pressure. In addition to those factors, the impact of a summer cash squeeze also continued to be felt in significant measures. With the large quantity of loans flowing among Chinese banks, it is not a coincidence that they found themselves running low on cash. However, China's central bank declined to increase the money supply in the open market, which would essentially restrain Chinese banks' ability to generate their interest income. The matter of the fact according to analysts is because the central banks intented to prevent banks from funding corporate lending using short-term interbank loans. As a result of the decision made by China's central bank, all other major Chinese banks have been expriencing lower income from their derived loan interest payments. Such an impact, of course, is certainly not limited to large-scale banks, because there are many smaller banks which have also been relying on the interbank borrowing as an increasingly important part of their businesses. Given the challenges posted against interbank borrowings, the slower growth is just another by-product of sluggish interest income. Economists commented on the bad-loan that banks normally would roll over loans to local governmentand state firms so as to keep the official bad-loan level to a minimum level.