The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Four of China's five largest banks reported lower second-quarter profits, as they responded to government pressure to reduce lending rates to stimulate weak loan demand in a slowing economy and struggling property sector. Despite this, all five lenders announced interim dividends for the first time in over a decade.
Key Highlights:
Decline in Profits: Industrial and Commercial Bank of China Ltd (ICBC), the world's largest lender by assets, posted a 0.8% drop in Q2 net profit, while China Construction Bank Corp (CCB) reported a 1.4% decline. Bank of China (BoC) and Bank of Communications (BoCom) also saw lower Q2 profits, although Agricultural Bank of China (AgBank) reported a 14.2% increase.
Pressure on Net Interest Margins (NIM): ICBC and CCB experienced a narrowing of their net interest margins, a key measure of profitability, with ICBC’s NIM falling to 1.43% from 1.48% at the end of June. This trend is expected to continue in the second half of 2024 due to mortgage repricing and government efforts to lower borrowing costs to support the economy.
Higher Dividends Despite Challenges: Despite lower profits, all five banks announced interim dividends, reflecting a push by the Chinese government to boost investor returns. BoCom, for example, will make an interim cash payment of 0.182 yuan per share, totaling 13.52 billion yuan, to be distributed early next year.
Property Sector Impact: The banks face rising risks from bad loans in the property sector. While some, like BoCom, warned of increasing bad debt from developers, others, such as BoC, plan to boost mortgage lending and consumer loans despite falling demand. Residential mortgages have decreased to 17% of the Chinese banking sector's total loans by the end of 2023, down from 21% two years earlier.
Stability of Non-Performing Loans: Despite the challenges, non-performing loan ratios among the five largest banks remained stable or slightly decreased, though concerns about the property sector's contagion effects persist.
The banks’ profitability is under pressure from weak loan demand, lower lending yields, and higher dividend payouts, compounded by ongoing challenges in the property sector and the broader economic environment.
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