The report provides an analysis of the 16 Chinese banks listed on the Chinese A-stock market as of the end of June 2014, such as financial positions, loan quality and investment characteristics
This report provides an overall analysis of the 16 Chinese banks listed on the Chinese A-stock market as of the end of June 2014, such as financial positions, loan quality and investment characteristics. The report asserts that the overall profitability of the Chinese banking industry slowly fell due to a decline in economic growth in the first half of the year, and the impact of decreasing deposits compounded by an increase in under-performing loans.
Key findings on the financial position of these banks for the first half of 2014 include:
- Profitability: The listed Chinese banks’ net profits attributable to the parent company amounts to 684.92 billion yuan in total. Earning growth dropped to 10.62% from 13.58% over the same period in 2013.
- Assets: Total assets of the banks covered in the report reached CNY 104.36 trillion, an increase of 0.92 billion yuan from the end of 2013; however, the rate of growth was only 9.69%, representing a slowdown over 2013. Moreover, all banks met the capital adequacy ratio (CAR) requirements.
- Non-performing loans: The balance and ratio of non-performing loans both increased, and the quality of credit assets has a strong downstream pressure. By the end of June, the total amount of the banks’ non-performing loans, exclusive of that of Bank of Beijing, was CNY 553.81 billion, representing an increase of 16.04% since the beginning of the year. The overall non-performing loan ratio also increased 1.055% since the end of 2013. The report notes that the greatest concentration of these loans is in the Yangtze River Delta, the Pearl River Delta, the Bohai Sea Region, and the central region.
Wang wrote a comment piece in response to the Circular on Regulating Inter-bank Businesses of Financial Institutions. “Circular 127 and its Impact on Regulation of Shadow Banking and Off-balance Sheet Businesses” analyses the effects of the Circular on restraining the spread of the domestic shadow banking as well as gives advice on the off-balance sheet financing of commercial banks.
“From the analysis of their investment structure we can see that the banks selected different investments based on their unique risk preferences, capital advantages, and revenue strategies,” said Yong Zhao, deputy general manager and head of professional services at Wolters Kluwer Financial Services. “The large state-owned banks tend to hold investments to their maturity. The national joint-stock commercial banks have demonstrated growth in a variety of accounts receivable categories, led by growth in trust funds assets, asset management products and financial products.”
“However, the above increase is expected to slow down because of the Circular on Regulating Inter-bank Businesses of Financial Institutions (YF  No. 127) that was jointly introduced by the People’s Bank of China, the State Administration of Foreign Exchange and the three financial regulators—China Banking Regulatory Commission, China Insurance Regulatory Commission and China Securities Regulatory Commission,” Spark Wang, senior regulatory intelligence expert at Wolters Kluwer Financial Services added. “In the short-to-medium term, bigger inter-banks will enhance the scope and duration of their risk management, clear inventory and control incremental costs.
“Secondly, the warning cap is set based on the Basel III requirements to gradually control and decrease the size of inter-bank business. As part of a business development strategy, priority will be given to banks that gain excessive revenue from financial services.”
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