“2017 is an important year for the implementation of the ‘13th Five-Year Plan’ and a year for the continued deepening of supply-side structural reform. China’s banking industry is still undergoing critical transformation where both opportunities and challenges coexist. To cope with the complex and ever-changing environment, listed banks will continue to explore the path for transformation and development, and FinTech will inject new impetus into the shaping of future banking. In addition, banks should strengthen risk prevention and control during transformation to achieve long-term sustainable development.”
— Jack Chan, Managing Partner of EY Financial Services in Greater China
This is the 10th EY annual report on China’s listed banks. The purpose of this annual report is to provide an outlook on the direction of the future development of China’s banking industry based on observations of the businesses, operating models and regulatory environment of the 37 listed banks in mainland China.
Decrease in loan loss provision and rebound in profit growth
|In 2016, the listed banks in China experienced a continued contraction in net interest margin, year-on-year decline in net interest income, and slower growth in net fee and commission income, while their cost-to-income ratios remained stable and loan provisions posted slower growth. The listed banks collectively realized a net profit of RMB1,453.18 billion in 2016, growing by 3.65% year-on-year, up by 0.8 percentage points from the 2.85% growth in 2015.|
Accelerated growth in personal housing loans and increased proportion of investment assets
|Over the past two years, the economic slowdown and lower return on investment in the real economy have resulted in a decreased supply of high-quality assets under the economic “new normal.” In 2016, the listed banks increased efforts in adjusting the asset structure, seeing their total assetsreach RMB154,335.007 billion, up by 13.90% from that of the prior year-end.|
Persisting credit risk due to rising NPL balances and ratios
|Both the NPL balances and NPL ratios of the listed banks continued to rise due to a combination of slower economic growth, increased risk exposure to industries burdened with excess capacity, and adjustments to commodity prices. At the end of 2016, the listed banks’ NPL balance posted slower growth, and the Special Mention loan ratios and overdue loan ratios fell. Nonetheless, the overall asset quality of the listed banks still faced significant pressure due to slower economic growth and the ongoing supply-side structural reform.|
Risk contagion prevention and liquidity management enhancement
The Chinese banks continue to develop integrated operations as the market-oriented reform deepens. Large banks have sought to integrate their own comprehensive financial service capabilities by establishing new entities or acquiring financial institutions holding various types of financial licenses. These banks have endeavored to leverage the advantages of holding a full license for financial operation at the group level to diversify deposit and loan utilization, improve the capital market and provide cost-efficient financial services supporting structural adjustment as well as transformation and upgrading. At the same time, driven by the “going global” strategy, the B&R initiative and other national strategies, large banks and national joint-stock banks have accelerated their globalized operations by establishing presence in the global financial centers to improve their competitiveness in global financial markets.
Acceleration of capital replenishment and initial success of “light model” transformation
|In 2016, the capital adequacy ratios (CAR) of the listed banks came under pressure as they experienced subdued growth in net profit and continued exposure to credit risk. |
Nonetheless, the ratios remained compliant with the regulatory requirements. The listed banks continued to move forward with external financing and enhanced capital bases typically through IPO of ordinary shares, and rights issue of ordinary shares and preference shares in both domestic and overseas securities markets. The average CAR of the listed banks as at 31 December 2016 stayed largely flat as compared to the level a year earlier.
New benefits and opportunities brought by “Belt and Road” and other national strategies
In 2016, the listed banks continued to embrace the key national strategies of the B&R initiative, the Beijing-Tianjin-Hebei integration initiative, and the Yangtze Economic Belt initiative, proactively capturing the new growth drivers of the regional economy, and capitalizing on the opportunities arising from the strategic emerging industries, advanced manufacturing industries, and the transformation and upgrade of traditional industries. In addition, the listed banks also continued to reduce credit exposure to industries burdened with overcapacity, implemented market-based and legalized debt-to-equity swaps, increased the amount of small and micro business loans and agricultural loans, and offered full support to the international cooperation in production capacity and Chinese companies “going global.”
Exploring the future shape of banking by tapping into FinTech
FinTech experienced rapid development in 2016, and buzzwords such as big data, artificial intelligence, blockchain, cloud computing, mobile payment and biological identification have become more prevalent. FinTech has changed and will continue to bring profound changes to the products and service offerings, business models and operating concepts of the banking industry. It will drive the transformation and upgrade of the traditional financial services industry and help financial institutions to achieve innovation in products and service offerings, and business models. FinTech can not only be used to reduce the operating cost of banks and improve customer experience, but can also help the banking industry to better capitalize on its customer service experience by making more targeted marketing plan and more granular risk management plan.
Improved efficiency through outlet transformation and continued efforts to propel operational reform
Against the backdrop of fast-growing mobile internet technology and evolving customer demands and habits, for banks that aim at improving operational efficiency, the effective solution is to actively expedite outlet transformation and upgrading, promote the synergy of online and offline channels, and optimize the structure of human resources, especially in a time when the banks face the challenge of narrowing net interest margin and slowing profit growth.
Outlook: Enhanced risk prevention and control, and continued innovation and transformation
According to the National Bureau of Statistics, the Chinese economy got off to a good start with gross domestic product (GDP) in the first quarter of 2017 reaching RMB18,068.3 billion, representing a 6.9% year-on-year increase. 2017 is an important year for the implementation of the 13th Five-Year Plan and a year for the continued deepening of the supply-side structural reform. China’s banking industry is still undergoing critical transformation and experiencing profound changes in the operating environment where both opportunities and challenges coexist.
Listed banks in China - 2015 review and outlook
Our ninth annual report presents a future outlook of China’s Banking Industry through observations of the business developments, operating models and regulatory landscape of 26 Chinese listed banks.
Unleashing the potential of FinTech in banking
Learn eight considerations that will help banks and FinTechs reap the benefits of a collaborative ecosystem, driving innovation and next-generation efficiency.
EY FinTech Adoption Index 2017
The rapid emergence of FinTech
Our most recent survey of more than 22,000 digitally active consumers highlights the impressive and rapid growth in adoption and the variations among 20 different mature and developing markets.
Global Banking Outlook 2017
Uncertainty is no excuse for inaction
Our 2017 global banking outlook survey of senior executives at almost 300 banks across the globe, indicates that risk and regulation will continue to dominate management’s agenda over the next 12 months.
Customer experience: innovate like a FinTech
Findings from our Global Consumer Banking Survey of more than 55,000 consumers provide insight into why banks are under such intense pressure to master the customer experience.
Understanding: the key to customer loyalty
Our Global Consumer Banking Survey 2016 explores customer understanding and defines four key groups: pros, digital stars, traditionalists and financial stars.
Download Listed banks in China: 2016 review and outlook as a printable document
Download 2017 first quarter results for 28 listed banks of China as a printable document