Killing Bank Profits Is a Pretty Desperate Move
Asking lenders to pass on their earnings to support small businesses shows China’s financial system was failing in the first place.
Pulling the same levers over and over again won’t work.
Photographer: Emmanuel Wong/Bloomberg
China’s banks are once again being asked to martyr themselves to the economy, forgoing profits to redirect funds toward capital-starved businesses. This won’t resolve the web of problems the financial system is caught up in.
The State Council has urged banks to return 1.5 trillion yuan ($211 billion) to the real economy in the form of low-cost loans to small and medium companies. That’s a big ask, amounting to about 75% of net profit, almost a quarter of revenue and 9% of capital buffers, according to Goldman Sachs Group Inc. In theory, it will save billions of dollars of interest expense for companies by pushing down implied lending rates. In reality, Beijing is acknowledging the deep dysfunction in its financial system and smacks of desperation.