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Treasury & Capital Markets
Chinese banks have more to worry about than NPLs as slowing profits bite
Bankers cite slowing profit growth as the main pressure facing the banking industry, as changing regulations continue to remain front-of-mind
Janette Chen 19 Jan 2018

CHINESE banks used to consider non-performing loans (NPLs) as the greatest pressure facing the banking industry. However, this has now changed as three quarters (74.3%) of Chinese bankers now cite slowing profit growth and narrowing spreads as the main pressure, according to a recent survey by the China Banking Association (CBA) and PwC.

“The challenge of NPLs has been uppermost in the minds of China’s bankers in recent years,” says Monica Ng, financial services partner for PwC Hong Kong. In 2016, 87% of Chinese bankers took NPLs as their chief concern, according to PwC’s survey in 2016. “This was supplanted in the 2017 survey by concerns about a slowdown in the rate of profit growth.”

Ng explains that one reason for the change in mindset is that the problem of non-performing loans has been alleviated by new regulations: “The concern about NPLs is always there, but measures have been taken by Chinese regulators. Therefore, the ratio of NPLs has been increasingly brought down,” she says.

The outstanding balance for NPLs at Chinese commercial banks continued to grow during the first half of 2017, but at a slower pace than the same period of the year before, according to a KPMG report.

“In addition, many commercial banks in China are still relying on lending, interbank financing and off-balance-sheet financing. The past year has seen a series of regulatory changes towards these aspects. As relevant regulations tighten, banks are starting to worry more about their future revenues,” says Ng.

Unsurprisingly, according to the survey, financial regulation continues to be a worry for bankers. When asked, “What external factors are of most concern in your daily operations?”, 78.4% of bankers cited financial regulations.

“The Chinese central government has now decided to guide the financial system to ‘come back to its origin’, meaning that the financial sector should focus more on supporting the real economy,” says Richard Zhu, PwC North China financial services leader.

China launched the Financial Stability and Development Committee in November last year. “This super financial regulator is turning Chinese regulators’ behavioral regulating into functional regulating, which indicates more cooperation and crossovers among different regulators,” Zhu says. “The regulators’ attitude and measures are restricting, with tightened supervision and higher penalties.”

The Chinese Bankers’ Survey 2017 was prepared jointly by the CBA and PwC, based on interviews with 1,920 bankers from 163 institutions, covering listed and unlisted institutions in 31 mainland Chinese provinces.

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