Lockdowns, travel bans hurl new headwinds at banks in China, HK

Banks are expected to perform well in Q1, but market risks are on the rise.

The future is not looking great for banks in China and Hong Kong, with intensified lockdown and travel bans over the past few weeks bringing in new problems for the lenders.

Economic indicators point to a sharp slowdown in March despite a 4.8% GDP growth for Q1 2022, according to a report by Jefferies Asia equity analysts Shujin Chen and Sam Wong . PMI new orders fell to its lowest in five years, whilst retail sales fell 3.5% in March, worse than market expectations. 

Unemployment also surged to 6% in March, its highest since 2018, and is expected to worsen in Q2 and Q3 as over 10 million college students graduate and headcounts in many service industries sharply decline.

The chief of these subdued numbers are the more lockdowns and travel banks implemented by the government as part of its zero-COVID push. Over 45 cities, making up 40% of China’s GDP, have reportedly implemented full or partial lockdowns as of 11 April, according to media reports–almost double from the 23 cities just a week earlier.

So far, banks are yet to show ill effects, with Chen and Wong expecting Hong Kong and China lenders to report high-single-digit net profit growth in Q1 2022 over the next two weeks.

“Retail banks face more challenges ahead, as personal loan growth and asset quality are both likely to worsen due to weak consumption and higher unemployment,” they warned.