Banking Newsletter - Rate hikes around the corner: Analysis of China listed banks’ results for the first quarter of 2017

China's economy rebounded moderately in 2017 Q1. However, the inter-bank market liquidity was still relatively tight, with the amount of corporate credit bonds decreasing significantly. According to PwC's latest Banking Newsletter, the shrinking size of corporate credit bond issuance has led to tight credit resources and is expected to affect the pricing of credit assets in the future.

This analysis covers 31 A-share and/or H-share listed banks that released their 2017 first quarter results, with a total net profit of RMB 411.80 billion, representing a year-on-year increase of 3.88%. The total assets of these banks, as of 31 March 2017, accounted for 82.67% of the total assets of China’s commercial banking sector.

Those banks are categorised into four groups as defined by the China Banking Regulatory Commission (CBRC):

According to the 26 listed banks that have disclosed non-performing loans (NPL) information, the balance of NPL reached RMB1.24 trillion in 2017 Q1, increased by 3.01% compared to the end of 2016. At the end of 2017 Q1, the NPL ratio of large commercial banks (LCBs), (joint-stock commercial banks) JSCBs and (rural commercial banks) RCBs declined slightly , while the NPL ratio of (city commercial banks) CCBs increased slightly compared to the same period of 2016.

In 2017 Q1, the (macro prudential assessment) MPA added off-balance sheet financial products into the broad range of credit, aiming to strengthen supervision on financial institutions’ off-balance sheet business and control risks.

Although the listed banks are all satisfied the regulation requirement to meet the minimum capital adequacy ratio of 8%, the MPA requires a higher level of capital for those banks that has faster credit growth. Due to the relatively large credit balance as the base, MPA has limited effects on LCBs, while small and medium-sized banks’ capital pressure is increasingly prominent.

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