by Rachel Yeoh, Rina Sasaki and Justina T. Lee

Chinese banks, which are due to report earnings next week, are grappling with a variety of operational challenges as the economy and property markets falter.

China Construction Bank Corp, Bank of Communications Co and China Merchants Bank Co could face heavy provisioning burdens in the second half of 2023 and early 2024 after developer Country Garden Holdings Co failed to pay dollar bonds on time Is. Blackrock Inc. And global investors including Allianz SE also have recent investments in the bond.

Banks also faced scrutiny after troubled shadow bank Zhongrong International Trust Co defaulted on payments on dozens of products and plans to restructure debt. The liquidity challenges underscore how property sector troubles and a weak economy are gripping the financial sector.

Bloomberg Intelligence analyst Francis Chan said local government vehicle financing and a deflationary economy are adding to the pressure.

As China’s economic recovery seems to be losing momentum, the People’s Bank of China earlier this week unexpectedly cut the rate on its one-year loans by 15 basis points to 2.5%, the most since 2020 . Shopping platform Meituan will report as China’s top leaders pledge to expand domestic consumption amid weak consumer sentiment.

Baidu Inc. and NetEase Inc. will also announce results next week, following a drop in revenue for Tencent Holdings Ltd., which was seen as an ominous omen for the tech industry.

Key points to note:

Tuesday: Baidu (BIDU US) could register a strong recovery in advertising revenue, due to verticals with high offline exposure such as health care, tourism and local living services, according to UOB’s Hian. Consensus suggests advertising revenue likely rose 12% to 20.4 billion yuan ($2.8 billion) in the second quarter. Citi analysts said AI cloud revenue growth would slow to 3% in the second half of the year, and could be delayed by delays in smart-transportation projects.

Estimates suggest that live-streaming platform Kuaishou (1024HK) could report its first quarterly net income since listing in 2021. The firm estimates net income in the first half will be no less than 560 million yuan, up from a net loss of 9.43 billion yuan a year earlier. According to BI, its long-term momentum may slow down due to competition in this space with the entry of Tencent. BI said macroeconomic uncertainty could hamper its advertising and live-streaming business for the rest of the year.

BI said Woodside Energy’s (WDS AU) earnings probably fell in the first half as the global inventory buildup of liquefied natural gas ebbed, putting pressure on gas prices. Workers at Chevron and Woodside facilities in Australia voted to approve industrial action at the North West Shelf, Wheatstone and Gorgon operations, which could disrupt around 10% of global exports of the fuel. The firm previously expected $630 million in expenses related to its Pluto facility, which would reduce first half net income. The company plans to sell a 10% non-operating participating stake in its Scarborough LNG project in Australia for $500 million.

Wednesday: China Construction Bank (939HK) may experience slower earnings growth this year as aggressive loan promotion offsets margin erosion. BI analyst Francis Chan expects net interest margin to decline by more than 20 basis points this year after a sharp decline in the first quarter, while revenue could grow at a low single-digit percentage rate. Credit risk from the property sector and local government financing vehicles could also hurt credit-cost performance, he said.

Thursday: BI analysts Katherine Lim and Trini Tan said Meituan (3690HK) is poised to expand its adjusted EBITDA margin this year as it improves operating efficiencies across initiatives including grocery retailing, group shopping and ride sharing . These plans will reduce additional expenditure on user incentives and boost revenue growth. He added that expansion of service categories and improvement in merchant technology could boost long-term sales and earnings. The consensus suggests that total revenue will likely rise 32% to 67.1 billion yuan in the quarter.

Gaming giant NetEase (NTES US) revenue could rise in the second quarter from a year earlier — though slower sequentially — as its online dictionaries and course provider Youdao saw improvements, estimates show. BI said strong early showings from Justice and Racing Master games could position it in a strong position for the rest of the year. With China’s consumer spending slowing last month and unemployment rising, overseas expansion is essential for long-term growth. The company, along with Tencent, faces a tighter regulatory environment amid rising geopolitical tensions. BI said management aims to grow foreign game sales to 50% of total gaming revenue from the current 10%.

Estimates suggest Qantas Airways’ (QAN AU) full-year revenue is likely to more than double, driven by a post-pandemic travel boom. In May, the airline forecast record pretax earnings of A$2.43 billion to A$2.48 billion ($1.6 billion) for the year ending 30 June. The gradual recovery of its international capacity from markets in China and Asia could exceed the current planned 85% levels in 2019. BI analysts Tim Bachus and Eric Zhu said, will recover in the first half of fiscal year 2024. Strategic business plans will also be closely monitored under the new management team.

Friday: Bank of Communications (HK 3328) and China Merchants Bank (HK 3968) may be under increasing net interest margin pressure as market sentiment on Chinese banks remains bearish, said Morningstar analyst Iris Tan. According to BI, CMB’s NIM could fall to 2.2% to 2.3%, as asset yields fall sharply to reflect Beijing’s pressure for lower loan prime rates and lower rates on existing home loans.

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