EY Greater China region today released Listed Banks in China – 2022 review and outlook report (Executive summary), which is based on the latest changes in the operating results, asset quality, business structure, digital transformation and social responsibility efforts of 58 listed banks in China in 2022. Through reviewing their overall developments over the past five years, the report has shed light on the banks’ efforts in “focusing on the path of value creation”. Those efforts included adhering to a long-term target to create stable and reliable value for shareholders, customers and society, while building a solid safety net, improving operational efficiencies and injecting new growth momentum by strengthening risk prevention and control, deepening technology empowerment, transforming business models and employing talented teams of professionals. The report reflected EY team’s continued attention and professionalism to the Chinese banking industry.
At the same time, EY team also released the Overview of Q1 2023 Results of 42 Chinese A-share listed banks. In the first quarter of 2023, the net profit of the 42 A-share listed banks grew 3.22% year-over-year (YoY), a drop of 5 percentage points. The operating income was RMB1,498.60 billion, an increase of 0.72% YoY. The total assets at the end of the first quarter reached RMB265,821.57 billion, 5.30% higher than at the end of 2022. Overall, the asset size maintained a stable growth in the first quarter of this year, while the operating income and the net profit growth still faced pressure. The non-performing loan (NPL) ratio and loan provision coverage ratio remained stable compared to the end of 2022.
Achieving sustainable development by focusing on “value creation”
“Over the past five years, the overall performance of listed banks experienced ups and downs because of the broader macro environment,” said Kelvin Leung, EY1 Greater China Financial Services Banking & Capital Markets Leader. “In response to the challenges, many listed banks proposed in their 2022 annual reports to create stable and reliable high-value returns for shareholders, customers and the broader communities to achieve long-term sustainable development across cycles.”
The report shows that the total operating income of the 58 listed banks in 2022 was RMB6,087.97 billion, a YoY growth of 0.79%; the total net profit for the year was RMB2,136.31 billion, rising 7.10% YoY. In 2022, despite a higher risk of economic downturn and multiple unexpected factors affecting the domestic economy, the listed banks still created value returns for shareholders by achieving continuous growth in both operating income and profits.
In 2022, the listed banks embraced the concept of “customer centricity” to constantly innovate products and services and provide comprehensive solutions for enterprises, helping them transform and upgrade their businesses. They also increased support for strategic emerging industries, including the manufacturing industry, technology innovation and other fields, resulting in the balance of loans to the manufacturing industry alone growing by 18.09% from 2021. In the meantime, the listed banks reduced fees to proactively lower the financing cost of the real economy, with the average loan yield in 2022 down by 0.13 percentage points compared with 2021. They also continued to drive the transformation of their retail business, develop the wealth management business and focus on the core financial needs of individual customers, with a view to serving the needs of the people for a better life, realizing the vision of “common prosperity” and creating value for customers.
In 2022, the listed banks actively practiced the new concept of finance development. While pursuing economic performances, the listed banks took the initiative to assume social responsibility by paying more attention to environmental and social actions. They explored the integration of the environment, social and governance (ESG) concepts with their development strategies, operation and management, putting them on a path for more socially responsible banking. On one hand, they positively responded to the national policies to help stabilize the macro economy and increase support for the real economy, with the net value of loans at the end of 2022 up 11.38% from the end of 2021. On the other hand, they also continued to drive the development of green finance and inclusive finance. For the 47 listed banks that disclosed their green loan status, the total balance reached RMB16,293.90 billion at the end of 2022, representing an increase of 45.02% from the end of 2021. And for the 49 listed banks that disclosed their inclusive loan status, the total balance rose 28.69% from the end of 2021 to RMB14,104.70 billion at the end of 2022. They have continued to create value for the society.
Continuous and diversified innovation brings new momentum to value creation
Benny Cheung, EY2 China South Financial Services Market Leader, said: “The key to value creation for the listed banks is to build a solid safety net through the strengthening of risk prevention and control, as well as deepening digital transformation; empower value creation and improve its output efficiency through technology innovation; transform business models to inject new momentum into value creation; attach importance to talent development to achieve employer-employee win-win; and consolidate the foundation of value creation.”
In 2022, the listed banks continued to strengthen their prediction, monitoring and analysis of important risk categories and key risk areas, with the quality of their assets passing stress tests designed with potential internal and external factors beyond expectation. By strengthening risk prevention and control, a safety net for value creation was firmly established. The total balance of NPLs of listed banks was RMB2,010.95 billion, an increase of RMB151.27 billion over the end of the previous year. The weighted average NPL ratio decreased from 1.37% at the end of 2021 to 1.33%. The weighted average provision coverage ratio of listed banks was 237.72%, an increase of 3.73 percentage points from the end of 2021. At the end of 2022, the weighted average capital adequacy ratio of all listed banks was 15.80%, an increase of 0.15 percentage points over the end of 2021, further enhancing their risk resilience.
Leung said: “It is important to note that the asset quality of small and medium-sized banks is still under great pressure, and the implementation of regulatory requirements such as new administrative measures on risk classification of assets and measures for capital management will also bring challenges to listed banks.”
In 2022, the listed banks continued to deepen digital transformation and empower value creation through technology innovation. Twenty-four listed banks disclosed the amount of technology investment in their 2022 annual reports, reaching RMB185.07 billion. Among them, the proportion of technology investment to operating income of six large banks increased from 2.92% in 2021 to 3.16% in 2022, and the proportion of technology investment to operating income of nine national joint-stock banks rose from 3.57% in 2021 to 3.91% in 2022. While maintaining the scale of fintech investment to constantly consolidate their technology foundation, the listed banks also continued to accelerate the digital transformation of human resources. In 2022, 27 listed banks disclosed in their annual reports the number of fintech/ information technology employees, which reached more than 134,000. According to data from 19 listed banks which disclosed the number of fintech employees for the past three years, the proportion of tech employees continued to rise, from 5.15% in 2021 to 5.68% in 2022.
Cheung added: “The digital transformation of listed banks has deepened over the past years and has begun to shift from an emphasis on speed to an emphasis on quality. With technology investment focusing on quality and efficiency, and top-level strategies becoming clearer, organizational mechanisms are becoming more agile. Big data, cloud-computing and other tech foundations are increasingly consolidated, while business, data and technology are deeply integrated. Internal and external empowerment are both progressing and scenario-based finance has also become a critical component of the digital transformation of listed banks.”
The listed banks continued to drive business model transformation to inject new momentum into value creation. In 2022, with the listed banks continuing to drive retail business transformation, the operating income of the retail business rose further. The proportion of operating income of retail businesses to the overall operating income was 45.61%, an increase of 2.27 percentage points from 2021, and its advantage over the corporate business expanded from 2.65 percentage points in 2021 to 4.81 percentage points. As the competition intensifies, the retail businesses have shifted their focuses from new client development to valuing both new clients and existing clients. In Leung’s view, the listed banks need to constantly inject new growth momentum into value creation by continuing to drive business transformation according to their own circumstances.
Looking ahead, Leung believes that with the Chinese economy showing signs of recovery in 2023, the listed banks are set to have more opportunities. They need to have a long-term view by continuing to embrace the real economy, maintaining strategic focus, driving transformation and development, serving the society, achieving long-term sustainable development, and creating long-term value for shareholders, customers and the society, while helping China’s economy to achieve high-quality growth, and bringing certainty and new opportunities to a world where uncertainty reigns.
1 Ernst & Young Hua Ming LLP
2 Ernst & Young