The year 2018 marks the 10th year since the eruption of the global financial crisis and the 40th anniversary of China’s reform and opening. Looking at the situation of Chinese listed banks in 2018, the industry trend could be summarized in three words: change, differentiation and deepening.
— Jack Chan, Managing Partner, Greater China Financial Services
This is the 12th 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 the observations of the businesses, operating models and regulatory environment of 47 listed banks in mainland China.
Faster growth in operating income and stable increase in net profits
|In 2018, China’s listed banks realized a total net profit of RMB1,627.17 billion, up 5.21% from 2017. The growth rate of net profit of listed banks remained largely flat as compared with 2017 due to the increase in impairment allowance offsetting the faster growth in operating income.|
Loans gaining higher proportion of banks’ balance sheets amid efforts to bolster the real economy
|Even as the total assets of listed banks grew continuously, the proportion of loans rose by 2.22 percentage points as at 31 December 2018. The growth rate of liabilities slowed down while that of deposits picked up.|
Sustained growth in retail business driven by effective structural adjustment
|Corporate banking and interbank business of listed banks posted slower growth amid tightened regulation and slowing economy. In contrast, retail business became a focus driving the transformation of listed banks. In 2018, listed banks remained customer-centered and integrated massive resources around customers, data and channels, to develop a business model for smart retail finance and provide customers with personalized and diversified one-stop offerings.|
Non-performing loans in flux, but asset quality pressures unrelenting
|In 2018, listed banks took the initiative to address external macroeconomic risks by enhancing credit risk control and increasing efforts to write off and dispose of non-performing assets. The aggregate non-performing loan (NPL) balance of listed banks increased while the NPL ratio decreased from 2017. However, the NPL-related figures showed divergent trends among listed banks. Particularly, both the NPL ratio and overdue loan ratio of city commercial banks rose, indicating greater pressure on asset quality.|
Implementation of new regulations on asset management accelerating transformation for wealth management business
In 2018, regulatory authorities continued to focus on non-standard products that contained a nested structure, lacked transparency, or concealed risks. To meet regulatory requirements, listed banks actively scaled down their holdings in non-standard investment and adjusted their asset management business structure. Structured entity investments sponsored by third parties that were excluded from the scope of consolidation ("off balance sheet") also showed a downward trend.
In addition, to further adapt to regulatory trends, listed banks have gradually worked off their non-compliant wealth management products over the transition period and pushed forward the transformation of wealth management products to net asset value (NAV) management, and optimized the structure of those products. The quantity of off-balance sheet wealth management products decreased slightly, while the proportion of wealth management products managed on a NAV basis increased.
Innovative capital replenishment instruments enhancing capital generation capabilities
In the context of increasing their support for the real economy and accelerating the disposal of non-performing assets, listed banks boosted their capital adequacy steadily as they continued to replenish capital through multiple channels in 2018. In the long run, the business development of listed banks requires improvement on both their ability to generate capital internally and innovate capital instruments to supplement as necessary.
Promoting green finance development and enhancing inclusive financial services
In 2018, listed banks actively responded to national strategy implementation, continued to promote the development of green finance and inclusive financial services, supported the construction of a national ecological civilization, and assumed social responsibilities.
Far-reaching financial services empowering the Belt and Road Initiative
The year 2018 saw listed banks leverage their own characteristics and advantages to provide continued support for the Belt and Road Initiative with financial services extending to lending, guarantees, bond underwriting, mergers and acquisitions, payment and clearing.
Smart banking and opening banking invigorating the industry
In 2018, technologies including AI, big data, cloud computing, and blockchain continued to facilitate smart banking and digital transformation of listed banks. The application of leading technologies has not only inspired the reform, innovation and management of listed banks, but also promoted expansion and upgrade of business models and service scenarios, which in turn had a profound impact on the transformation and development of listed banks.
The year 2018 is also called China’s “first year of open banking”. In the annual reports, many banks mentioned the “open bank” model, diversifying their financial services scenarios and creating a financial services ecosystem through FinTech enablement.
Outlet transformation fueled by technology and efforts reshaping the talent structure
In 2018, listed banks continued to propel outlet optimization and digital transformation and upgrading to enhance the integration of channels and provide more diversified customer-centered services, thus seeing an accelerated shift toward operation of sales-oriented outlets and comprehensive optimization of people structure.
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