The market does not seem to like Chinese banks results. There are concerns about future profitability, particularly as the structure of recent rate cuts by the PBOC reduced net interest margins going forward.
And on top of reduction in margins, as well as slowing loan demand on a weaker economy (among other things), no one seems to believe in Chinese banks non-performing loan numbers at face value. As summarised elsewhere by many other people, NPL ratios for most banks have remained stable or are falling, some driven by falling absolute level of NPLs.
Such results do not seem to match what we hear from news and anecdotal evidence, which sometimes sounds like some a sort of mini debt crisis in parts of China. As Credit Suisse put it perfectly, the “double-decline” of NPLs and NPL ratios “does not gel with the profit and operating cash flow trends observed in China Inc”. That is probably largely because the deterioration of asset qualities have not shown up in terms of NPLs yet, but in terms of overdue loans growth for the time being.
The following chart from Credit Suisse sums it up perfectly. While NPLs for most banks are relatively stable, the biggest increases came from overdue loans:
