Shanghai, 24 Apr 2017 – China’s listed banks continued to grow their net profits in 2016, but they will face increasing pressure to maintain this growth. This is one of the main findings of PwC’s China Banking Newsletter 2016, which is released today. Slowing economic growth and downward pressure on interest rates mean that net interest margins will continue to narrow and asset impairments will increase. Banks are leveraging asset expansion and solid growth in their intermediary business to help drive growth. But credit asset quality and provision coverage remain under pressure.
The Newsletter looks at the 2016 annual results of 27 A-share and H-share listed banks, published as of 31 March 2017. It follows the China Banking Regulatory Commission’s categories of Large Commercial Banks, Joint-Stock Commercial Banks, City Commercial Banks and Rural Commercial Banks (full list below).
The Newsletter shows the different categories of banks are facing different challenges. Pre-tax profits were flat or fell for the Large Commercial Banks, as net interest income declined and growth in fee-based income was slow. At some Joint-Stock and City Commercial Banks, operating profit growth remained healthy, but net profits were impacted by provisions. For Rural Commercial Banks, net profit growth was more variable, reflecting the influence of regional differences on profitability.
“Asset expansion is the main way these banks have been stabilising profit growth,” says Vincent Yao, Financial Services Partner for PwC China. “But fees from intermediary business are also important. They increased as a proportion of total interest and fee income across all the listed banks. For the Joint-Stock Commercial Banks, non-interest income was nearly a third of operating income.”
In terms of asset-liability structure, Chinese listed banks maintained their strategies in 2015. Banks continued to adjust their asset structures by generally expanding their securities investment assets and reducing interbank assets. On the liabilities side, banks increased the proportion of interbank deposits, which was one of the fastest growing liability categories in 2016.
Non-performing loans remained a concern in 2016. NPL ratios increased across the board to an average of 1.67% at end-2016, up from 1.61% the previous year. The NPL balance was up 16.80% year-on-year to reach RMB 1,154bn.
Banks sought to tackle their NPL balances through a variety of methods in 2016. These included restructuring, write-offs and transfers. The banks are clearly intent on getting credit risk under control – write-offs and transfers reached RMB 515bn in 2016 which were more than 26% higher than in 2015.
Looking forward to 2017, Jimmy Leung, Financial Services Leader for PwC China says, a number of areas where banks need to adjust their business strategies. They will need to prepare for new compliance requirements under the forthcoming Macro-Prudential Assessment (MPA) system. The banks also need to make better use of FinTech to achieve channel transformation and deliver service innovations for customers. Recent regulatory tightening will prompt banks to focus on their core banking business while better reflecting risk profiles, thus serving the real economy more effectively.
The report covers the following 27 major listed banks:
Large Commercial Banks (6)
Industrial and Commercial Bank of China (ICBC)
China Construction Bank (CCB)
Agricultural Bank of China (ABC)
Bank of China (BOC)
Bank of Communications (BoCom)
Postal Savings Bank of China (PSBC)
City Commercial Banks (9)
Bank of Jiangsu (Jiangsu)
Shengjing Bank (Shengjing)
Huishang Bank (Huishang)
Bank of Tianjin (Tianjin)
Bank of Jinzhou (Jinzhou)
Harbin Bank (Harbin)
Bank of Chongqing (Chongqing)
Zhengzhou Bank (Zhengzhou)
Bank of Qingdao (Qingdao)
Joint-Stock Commercial Banks (7)
China Merchants Bank (CMB)
China CITIC Bank (CITIC)
Minsheng Bank of China (CMBC)
Shanghai Pudong Development Bank (SPDB)
China Everbright Bank (CEB)
Ping An Bank (PAB)
China Zheshang Bank (CZB)
Rural Commercial Banks (5)
Chongqing Rural Commercial Bank (QCRCB)
Jiutai Rural Commercial Bank (JTRCB)
Changshu Rural Commercial Bank (CSRCB)
Wuxi Rural Commercial Bank (WXRCB)
Jiangyin Rural Commercial Bank (JYRBC)