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“The Challenges Are Unprecedented”: Chinese Bank Profits Crater Amid Bad Debt Surge

"The Challenges Are Unprecedented": Chinese Bank Profits Crater Amid Bad Debt Surge



"The Challenges Are Unprecedented": Chinese Bank Profits Crater Amid Bad Debt Surge Tyler Durden Mon, 08/31/2020 - 22:45

First it was US banks. Now it's China's turn.

Not long after the Big Four banks, and the US financial sector in general, reported the biggest jump in loan loss provisions following the covid crisis as millions of unemployed workers simply stopped paying down their debt, rent, car, phone and utility payments, which sent loss reserve among the megabanks to a near record $33 billion...

... which in turn led to the biggest tightening in loan standards since the financial crisis just as US consumers and small businesses desperately need cheap capital as the record fiscal stimulus has gradually unwound since July 31...

... it is now China's turn to go through the same pain, with Reuters and Bloomberg reporting that China’s largest state-owned banks are bracing for a surge in bad debt and increased margin pressure in the months ahead as forbearance policies designed to give borrowers breathing space during the coronavirus crisis expire (similar to the US). And as Chinese banks set aside record amounts to counter an eruption of bad debt, they posted their worst profit declines in more than a decade as the government called on these state-owned enterprises to help backstop the slumping economy, while putting pressure on plans to pay dividends next year. Profit at Industrial & Commercial Bank of China, the world’s largest lender by assets, China Construction Bank Corp., the second-largest, Agricultural Bank of China and Bank of China dropped by at least 10% in the first half as loan loss provisions jumped between 27% and 97% at the four banks.

In total, China's more than 1,000 commercial banks posted a 24% decline in second quarter profits, with non-performing loans hitting a record 2.7 trillion yuan, resulting in an official average non-performing loan ratio for commercial banks of 1.94%, the highest since 2009. While it was unclear what the real NPL ratio is, some estimates have pegged it at 5-10x more than the official numbers.

Non-performing loan (NPL) ratios rose at the big five banks during the reporting period, with ICBC’s increasing to 1.5% by the end of June from 1.43% three months earlier, and that of CCB rising by 0.07 percentage points in second quarter to 1.49%.

This lead to a spike in Q2 loan-loss provisions which jumped 61% to 436% compared to the same period last year at ICBC, CCB, AgBank and BoC, data from China International Capital Corp showed. Meanwhile, as in the US, the crater in first-half profit was mostly due to provisioning ordered by regulators, CICC said, noting that second-quarter profit growth would otherwise have been 1.5% to 5.1% for those four lenders.

"The external challenges in the second half are unprecedented," Bank of China President Wang Jiang told Reuters on Monday.

The bank's gloomy forecasts highlight the devastating impact of the pandemic and the economic slowdown on China’s banks, despite Beijing's best attempts to pretend it was "but a scratch" and brush the slowdown under the rug. If the plunge in profit wasn't enough, the same banks have been asked by Beijing to step up and lend to flagging sectors, while sacrificing even more profits in a bid to revive the country’s fortunes.

Contrary to Beijing's official narrative that the covid shock is in the rearview mirror, millions of bank clients have struggled to repay debt after months of lockdown and some sectors, such as those in the travel industry, and are battling to survive under the shadow of coronavirus. "As forbearance policies that help companies to recover expire in the first half of next year, the impact of non-performing loans will increase,” Chief Risk Officer Jin Yanmin of China Construction Bank Corp said during a news briefing. Meanwhile, Ji Zhihong, CCB vice president, predicted that net interest margins, a key profitability indicator, will narrow further leading to further profit erosion.

Agricultural Bank of China reported net income 108.8b yuan vs 121.4b yuan; its President Zhang Qingsong said bad loan pressure was rising, as short-term policies aimed at keeping firms afloat expired, adding its profit growth faces pressure from a "declining loan prime rate, fee cuts and an increase in loan loss provisions."

Industrial and Commercial Bank of China, the world’s largest commercial lender by assets, reported net income 148.8b yuan vs 167.9b yuan year earlier; the bank said it will face higher pressure on loan risk controls in the second half and will increase efforts on provisions to guard against “significant turbulence,” its vice president Liao Lin said.

Meanwhile, as Bloomberg notes, China’s $45 trillion banking system has been put on the front-line of helping alleviate the worst economic slump in 40 years, triggered by a large scale shutdown due to the virus outbreak. Authorities have required lenders to forgo 1.5 trillion yuan ($218 billion) in profit by providing cheap funding, deferring payments and increasing lending to small businesses struggling with the pandemic.

Unfortunately for China, as well as the US, the pain is hardly over and banks are expected to keep boosting provisions in the third quarter, Everbright Securities analyst Wang Yifeng said. The banks themselves also warned that the second half would continue to be challenging: "The global economy faces unfavorable conditions including significant contractions in global trade and investments, volatile financial markets, limitations on interactions between countries, disruption of globalization and heightened geopolitical tensions," ICBC said in its report.

“Consumer behavior changes and reshuffle of industries accelerated by the pandemic will have an uncertain impact on the economy,” Moody’s Investor Service analyst Nicholas Zhu said.

Citigroup last month slashed 2020 to 2022 earnings forecasts for major Chinese banks by more than 10 percentage points and expects them to suffer a 13% drop in profit this year.

“Under mounting political pressure, China banks not only have had to further cut loan yields to subsidize the real economy, but also need to accelerate counter-cyclical provisioning and adopt more conservative NPL assumptions in setting provisions,” Citigroup analysts led by Judy Zhang wrote. “The potential negative earnings growth will overhang the China banks’ near-term share performance.”

Speculation is also growing on whether Chinese banks will be able to maintain paying out about 30% of their profit in dividends. Another lender, Bank of Communications, on Friday reported a 15% decline in profit and said it was looking at its dividend policy ahead. “The dividend policy needs to be aligned with the external environment and conditions,” Bocom Vice President Guo Mang said on Friday. “It’s necessary for every bank to study their current policy -- while trying to retain more capital we should also handle the relationship between bank growth and shareholder dividends.”

As a result, investors have fled from Chinese lenders and shares of the biggest banks are trading at a mere 0.45 times their forecast book value, a record low valuation, after underperforming the benchmark indexes in Hong Kong and on the mainland for most of the past five years.

* * *

The hope, according to CICC analysts, is that the first-half is likely to mark the start of the sector’s bottoming-out and they expect the industry to post profit growth again in 2021 as economic activity gradually recovers. In the second half and early 2021, big banks are expected to step up the sale of capital bonds to help counter deteriorating asset quality.

That won't be enough, and Moody's estimates that China’s biggest banks still have a estimated shortfall of $500 billion by 2025 to meet global capital requirements.

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Watch Yield Curve For When Stocks Begin To Price Recession Risk

Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices…



Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices are currently diverging from recessionary leading economic data. However, a decisive steepening in the yield curve leaves growth stocks and therefore the overall index facing lower prices.

Leading economic data has been signalling a recession for several months. Typically stocks closely follow the ratio between leading and coincident economic data.

As the chart below shows, equities have recently emphatically diverged from the ratio, indicating they are supremely indifferent to very high US recession risk.

What gives? Much of the recent outperformance of the S&P has been driven by a tiny number of tech stocks. The top five S&P stocks’ mean return this year is over 60% versus 0% for the average return of the remaining 498 stocks.

The belief that generative AI is imminently about to radically change the economy and that Nvidia especially is positioned to benefit from this has been behind much of this narrow leadership.

Regardless on your views whether this is overdone or not, it has re-established growth’s dominance over value. Energy had been spearheading the value trade up until around March, but since then tech –- the vessel for many of the largest growth stocks –- has been leading the S&P higher.

The yield curve’s behaviour will be key to watch for a reversion of this trend, and therefore a heightened risk of S&P 500 underperformance. Growth stocks tend to outperform value stocks when the curve flattens. This is because growth companies often have a relative advantage over typically smaller value firms by being able to borrow for longer terms. And vice-versa when the curve steepens, growth firms lose this relative advantage and tend to underperform.

The chart below shows the relationship, which was disrupted through the pandemic. Nonetheless, if it re-establishes itself then the curve beginning to durably re-steepen would be a sign growth stocks will start to underperform again, taking the index lower in the process.

Equivalently, a re-acceleration in US inflation (whose timing depends on China’s halting recovery) is more likely to put steepening pressure on the curve as the Fed has to balance economic growth more with inflation risks. Given the growth segment’s outperformance is an indication of the market’s intensely relaxed attitude to inflation, its resurgence would be a high risk for sending growth stocks lower.

Tyler Durden Wed, 05/31/2023 - 13:20

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COVID-19 lockdowns linked to less accurate recollection of event timing

Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing…



Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing new insights into how COVID-19 lockdowns impacted perception of time. Daria Pawlak and Arash Sahraie of the University of Aberdeen, UK, present these findings in the open-access journal PLOS ONE on May 31, 2023.

Credit: Arianna Sahraie Photography, CC-BY 4.0 (

Participants in a survey study made a relatively high number of errors when asked to recollect the timing of major events that took place in 2021, providing new insights into how COVID-19 lockdowns impacted perception of time. Daria Pawlak and Arash Sahraie of the University of Aberdeen, UK, present these findings in the open-access journal PLOS ONE on May 31, 2023.

Remembering when past events occurred becomes more difficult as more time passes. In addition, people’s activities and emotions can influence their perception of the passage of time. The social isolation resulting from COVID-19 lockdowns significantly impacted people’s activities and emotions, and prior research has shown that the pandemic triggered distortions in people’s perception of time.

Inspired by that earlier research and clinical reports that patients have become less able to report accurate timelines of their medical conditions, Pawlak and Sahraie set out to deepen understanding of the pandemic’s impact on time perception.

In May 2022, the researchers conducted an online survey in which they asked 277 participants to give the year in which several notable recent events occurred, such as when Brexit was finalized or when Meghan Markle joined the British royal family. Participants also completed standard evaluations for factors related to mental health, including levels of boredom, depression, and resilience.

As expected, participants’ recollection of events that occurred further in the past was less accurate. However, their perception of the timing of events that occurred in 2021—one year prior to the survey—was just an inaccurate as for events that occurred three to four years earlier. In other words, many participants had difficulty recalling the timing of events coinciding with COVID-19 lockdowns.

Additionally, participants who made more errors in event timing were also more likely to show greater levels of depression, anxiety, and physical mental demands during the pandemic, but had less resilience. Boredom was not significantly associated with timeline accuracy.

These findings are similar to those previously reported for prison inmates. The authors suggest that accurate recollection of event timing requires “anchoring” life events, such as birthday celebrations and vacations, which were lacking during COVID-19 lockdowns.

The authors add: “Our paper reports on altered timescapes during the pandemic. In a landscape, if features are not clearly discernible, it is harder to place objects/yourself in relation to other features. Restrictions imposed during the pandemic have impoverished our timescape, affecting the perception of event timelines. We can recall that events happened, we just don’t remember when.


In your coverage please use this URL to provide access to the freely available article in PLOS ONE:

Citation: Pawlak DA, Sahraie A (2023) Lost time: Perception of events timeline affected by the COVID pandemic. PLoS ONE 18(5): e0278250.

Author Countries: UK

Funding: The authors received no specific funding for this work.

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Hyro secures $20M for its AI-powered, healthcare-focused conversational platform

Israel Krush and Rom Cohen first met in an AI course at Cornell Tech, where they bonded over a shared desire to apply AI voice technologies to the healthcare…



Israel Krush and Rom Cohen first met in an AI course at Cornell Tech, where they bonded over a shared desire to apply AI voice technologies to the healthcare sector. Specifically, they sought to automate the routine messages and calls that often lead to administrative burnout, like calls about scheduling, prescription refills and searching through physician directories.

Several years after graduating, Krush and Cohen productized their ideas with Hyro, which uses AI to facilitate text and voice conversations across the web, call centers and apps between healthcare organizations and their clients. Hyro today announced that it raised $20 million in a Series B round led by Liberty Mutual, Macquarie Capital and Black Opal, bringing the startup’s total raised to $35 million.

Krush says that the new cash will be put toward expanding Hyro’s go-to-market teams and R&D.

“When we searched for a domain that would benefit from transforming these technologies most, we discovered and validated that healthcare, with staffing shortages and antiquated processes, had the greatest need and pain points, and have continued to focus on this particular vertical,” Krush told TechCrunch in an email interview.

To Krush’s point, the healthcare industry faces a major staffing shortfall, exacerbated by the logistical complications that arose during the pandemic. In a recent interview with Keona Health, Halee Fischer-Wright, CEO of Medical Group Management Association (MGMA), said that MGMA’s heard that 88% of medical practices have had difficulties recruiting front-of-office staff over the last year. By another estimates, the healthcare field has lost 20% of its workforce.

Hyro doesn’t attempt to replace staffers. But it does inject automation into the equation. The platform is essentially a drop-in replacement for traditional IVR systems, handling calls and texts automatically using conversational AI.

Hyro can answer common questions and handle tasks like booking or rescheduling an appointment, providing engagement and conversion metrics on the backend as it does so.

Plenty of platforms do — or at least claim to. See RedRoute, a voice-based conversational AI startup that delivers an “Alexa-like” customer service experience over the phone. Elsewhere, there’s Omilia, which provides a conversational solution that works on all platforms (e.g. phone, web chat, social networks, SMS and more) and integrates with existing customer support systems.

But Krush claims that Hyro is differentiated. For one, he says, it offers an AI-powered search feature that scrapes up-to-date information from a customer’s website — ostensibly preventing wrong answers to questions (a notorious problem with text-generating AI). Hyro also boasts “smart routing,” which enables it to “intelligently” decide whether to complete a task automatically, send a link to self-serve via SMS or route a request to the right department.

A bot created using Hyro’s development tools. Image Credits: Hyro

“Our AI assistants have been used by tens of millions of patients, automating conversations on various channels,” Krush said. “Hyro creates a feedback loop by identifying missing knowledge gaps, basically mimicking the operations of a call center agent. It also shows within a conversation exactly how the AI assistant deduced the correct response to a patient or customer query, meaning that if incorrect answers were given, an enterprise can understand exactly which piece of content or dataset is labeled incorrectly and fix accordingly.”

Of course, no technology’s perfect, and Hyro’s likely isn’t an exception to the rule. But the startup’s sales pitch was enough to win over dozens of healthcare networks, providers and hospitals as clients, including Weill Cornell Medicine. Annual recurring revenue has doubled since Hyro went to market in 2019, Krush claims.

Hyro’s future plans entail expanding to industries adjacent to healthcare, including real estate and the public sector, as well as rounding out the platform with more customization options, business optimization recommendations and “variety” in the AI skills that Hyro supports.

“The pandemic expedited digital transformation for healthcare and made the problems we’re solving very clear and obvious (e.g. the spike in calls surrounding information, access to testing, etc.),” Krush said. “We were one of the first to offer a COVID-19 virtual assistant that deployed in under 48 hours based on trusted information from the health system and trusted resources such as the CDC and World Health Organization …. Hyro is well funded, with good growth and momentum, and we’ve always managed a responsible budget, so we’re actually looking to expand and gather more market share while competitors are slowing down.”

Hyro secures $20M for its AI-powered, healthcare-focused conversational platform by Kyle Wiggers originally published on TechCrunch

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