EY issues China Banking Industry Report: Opportunities abound in e-finance and mobile banking platforms

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Beijing, 14 May 2013 — According to the EY report titled “Listed Banks in China – 2012 Review and Outlook”, with a further slowdown in the profit growth of China’s listed banks, the banking industry has embarked on tapping into new development opportunities such as e-finance, e-commerce and mobile banking.

Although the growth of intermediary services, including wealth management business, has slowed down, the market still maintains steady development. Jack Chan, Managing Partner, Financial Services of EY, Greater China explains that these services have made significant contributions to achieving profit growth at a time when China’s banking industry needs to transform its operation mechanism.  

 “The impact of various factors such as the slowdown of China’s macro economy, the acceleration of reform on interest rate liberalization and tightened regulatory constraints on capital has resulted in a slower profit growth of China’s listed banks in 2012. However, China’s banking industry is reshaping its profit model, with innovation becoming an important engine. Innovation applies not only to products and services, but also to regulations and management. China’s banking industry has started to focus on the innovation of ideas to realize sustainable development.” says Chan.

Geoffrey Choi, Partner and Banking & Capital Markets Sector Leader of EY in Greater China, adds, “The rapid development of e-commerce and the emergence of third-party payment platforms are challenges as well as opportunities for China’s banking industry. The banking industry is expected to seize this opportunity by speeding up system upgrades, improving the customer experience and using new technologies to facilitate financial innovation. Particularly for mobile banking services, banks need to focus on developing services which meet customers’ demand for real-time services, convenience, efficiency and effectiveness, while enhancing safeguards to maintain the security of clients’ data and information.”

The report also highlights that despite the impact on commercial banks from regulators’ requirements for the charging of fees, the 17 listed banks surveyed still maintain an average of 12% increase in net income from fees and commissions, to which wealth management business made a marked contribution. Steven Xu, Partner, Financial Services, EY, Greater China explains, “Regulatory authorities have launched a range of initiatives, such as the March 2013 release of Notice of CBRC on Regulating the Relevant Matters on Investment Operation of Commercial Banks’ Wealth Management Services, which requires banks to transform their operation models over the wealth management product funding pools and raises requirements for IT system functionality, product management, and  information disclosure. Going forward, wealth management services are expected to develop within a more regulated market environment.”

The report shows that the 17 listed banks in mainland China maintained their profit growth in 2012, with an aggregated net profit of RMB 1,040.7 billion. But the growth has slowed by 12% from 29% in 2011 to 17%.

EY notes that the asset quality of the listed banks remained stable in 2012 with an average non-performing loan (NPL) ratio falling to 0.92% at the end of 2012 from 0.97% at the end of 2011. However the NPL balances increased by RMB 32 billion from previous year end. The proportion of loans to local government financing vehicles (LGFV) and the real estate sector decreased from the previous year, which is a result of relevant regulatory policies having gradually taken effect. But attention still needs to be paid to the possibility of funds flowing into LGFVs and the property market through channels beyond bank lending, which may impact the effectiveness of regulatory policies.    

EY has published its annual China’s listed banks’ outlook report for six consecutive years. The findings are based on observations of business development, operation models, and regulatory environment for China’s 17 listed banks.

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This news release has been issued by EY, China, a part of the EY global network.