PwC: Chinese listed banks enter a period of stability

Shanghai, 27 Sep 2017  - PwC today released its latest China Banking Newsletter - Review and Outlook of China’s Banking Industry in the First Half of 2017.  The report indicates that Chinese listed banks are entering a period of stability. Further, it shows that net profit of Chinese listed banks maintained growth in the first half of this year, albeit at a slightly slower pace than the same period last year. Additionally, both the non-performing loan ratio and overdue loan ratio declined.

PwC’s Banking Newsletter covers the financial results of the first half of the year for 39 A-share and/or H-share listed banks, published by the end of June, 2017. The report follows China Banking Regulatory Commission’s categories which include six Large Commercial Banks, nine Joint-Stock Commercial Banks, 16 City Commercial Banks and eight Rural Commercial Banks.

According to the report, Chinese listed banks chalked up a net profit of 849.72 billion yuan in the first half of 2017, marking a year-on-year increase of 4.50%. The pace of growth slowed down slightly compared with the same period in 2016.

In the first half of 2017, both the overall return on assets (ROA) and return on equity (ROE) declined. Except for Large Commercial Banks, the overall ROA of other listed banks has reduced significantly to below 1%.

As of the end of June 2017, the total assets of listed banks amounted to 161.98 trillion yuan, an increase of 4.21% from the end of 2016. Compared with same period last year, the growth rate of the total assets and total liabilities are slowing down. In the first half year of 2017, the proportion of loans to customers increased, while interbank assets saw negative or low growth. The trends reflect the efficacy of regulatory measures which have tightened risk control, as well as the enhanced role of banks in servicing the real economy.

According to the report, by the end of June 2017, the value of outstanding non-performing loans had reached 1.3 trillion yuan, up 4.24% from the end of 2016. The non-performing loan ratio was 1.60%, down 0.05 percentage points from the end of 2016. Also, the NPL and the special-mention loan ratios of listed banks in all categories dropped from the end of 2016.  Both City Commercial banks and Rural Commercial Banks saw an increase in the proportion of their loans more than 90 days overdue against total outstanding NPLs. The upward trend could be indicative of credit risk yet to be fully exposed and consequently, should be observed closely.

Chinese listed banks have been transforming so they can maintain sustainable growth, while retail banking has become an area that all banks embrace. Over the first half of 2017, Corporate banking still accounted for more than other banking segments in terms of operating income, but the proportion fell from the prior period. Concurrently, the proportion of the retail banking business for Large Commercial Banks, Joint-stock Commercial Banks and City Commercial Banks rose. This changing dynamic impacting operating income is not only being driven by the banks themselves, but also a response to the challenges arising from internet finance.  

Also of note this year, the five major state-owned commercial banks have all initiated various forms of cooperation, forging “deep collaboration” with technology companies.

Jimmy Leung, PwC China Financial Services Leader, noted: “The importance of new technology for shifting finance to the Internet has been widely recognized in the industry. Fintech now plays a critical role in risk pricing, resource allocation, data security and risk management. Consequently, commercial banks are increasingly cooperating with technology companies in a bid to combine underlying technology and data with the professional competence of financial institutions.”

The report shows that several medium-sized banks are now almost on the heels of five state-owned banks when it comes to exploring business overseas as part of efforts to adapt to the “Belt and Road Initiative” and the “Going-out” strategy. Additionally, the banking industry has been ushering in more development opportunities, while Chinese commercial banks are stepping up in terms of globalization. However, as the banks accelerate expansion, due consideration of compliance risks is needed.

Jimmy Leung said: “The foundation of the banking industry is to serve the real economy, and inclusive finance is an important booster for the transformation of banks. Listed banks need to take an innovative approach to embrace technology and adapt new thinking and perspectives to seek fresh drivers for sustainable growth.”


Notes

The report covers the following 39 major listed banks:   

Large Commercial Banks

Industrial and Commercial Bank of China

China Construction Bank

Agricultural Bank of China

Bank of China

Bank of Communications

Postal Savings Bank of China

 

Joint-Stock Commercial Banks

China Merchants Bank

Industrial Bank of China

Shanghai Pudong Development Bank

China CITIC Bank

Minsheng Bank of China

China Everbright Bank

Ping An Bank

Hua Xia Bank

China Zheshang Bank

 

City Commercial Banks

Bank of Beijing

Bank of Shanghai

Bank of Hangzhou

Bank of Jiangsu

Bank of Nanjing

Bank of Ningbo

Shengjing Bank

Huishang Bank

Bank of Tianjin

Bank of Jinzhou

Harbin Bank

Bank of Chongqing

Guiyang Bank

Zhengzhou Bank

Bank of Qingdao

Zhongyuan Bank

 

Rural Commercial Banks

Chongqing Rural Commercial Bank

Jiutai Rural Commercial Bank 

Changshu Rural Commercial Bank

Wuxi Rural Commercial Bank 

Jiangyin Rural Commercial Bank

Wujiang Rural Commercial Bank

Zhangjiagang Rural Commercial Bank

Guangzhou Rural Commercial Bank

 

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