Ernst & Young Releases China Banking Industry Report
According to the Ernst & Young report, “2011 Review of China’s Listed Banks and Outlook,” the rapid growth of the Chinese banking industry may be hard to sustain due to the slowdown of the national economy, steady advances in market-oriented interest rate reform as well as tightened capital restrictions.
Therefore, Chinese banks must make it a top priority to change patterns of development, promote business transformation and offer diversified banking services to meet the needs of the real economy.
Keith Pogson, Managing Partner of Asia Pacific Financial Services of Ernst & Young, says, “The Chinese banking industry needs to change its business philosophy and use innovative service models to achieve a win-win outcome for both banks and enterprises. In addition to establishing a clear strategic vision, the banks need to make informed choices at each of the key decision points of their business model transformation.“
Geoffrey Choi, the Banking and Capital Markets Leader of Ernst & Young in Greater China, says, “banks should think carefully how to transform their businesses. For example, in terms of market positioning, banks need to make a careful decision to identify market segments based on customer characteristics to support building a distinct brand and businesses to sustain growth through differentiation.
“In their business operations, banks can focus efforts to change management models, integrate marketing channels and provide innovative and tailored financial products to further improve service levels, striving to extend beyond traditional financial intermediation to become comprehensive financial service institutions with a full range of wealth management services.”
According to the report, 17 listed banks in Mainland China maintained their profit growth momentum in 2011, with an aggregated net profit of RMB 886.7 billion, representing a 29% increase. But due to the slowdown of asset expansion, the growth rate was 4 percentage points lower than that of 2010.
According to the report, 2011 witnessed a continuing rapid increase of net fee and commission income at the 17 listed banks, with contribution to operating income rising to 18%. The aggregate domestic financial assets increased in step with the growth in national wealth, which has promoted the rapid development of asset management businesses such as investment banking, custody services, wealth management and private banking.
However, the intermediary market remains to be further standardized, for example, increasing the transparency of charges, regulating management over the sale of product, educating and informing customers about risk, strengthening information disclosure, etc. There remains a long road ahead in building a domestic financial consumer protection system.
According to the report, the asset quality of listed banks as a whole remained stable in 2011, with the average non-performing loan (NPL) ratio falling to 0.97% in 2011 from 1.14% at the end of 2010, however the NPL balances of some banks rose. In 2012, as the economic growth of China slows down and the national macro-adjustment policy takes effect, the multi-year downward trends of both NPLs and related ratios in the Chinese banking industry may be challenged.
In 2011, initial results were achieved in clearing up and regulating loans relating to the local government financing platforms. The proportion of government financing platform loans in most listed banks declined from the year before, but challenges still remain.
This Report, Ernst & Young’s fifth annual report on listed banks in China, contains an in-depth analysis of the profitability, assets and debt structure, asset quality, capital and liquidity of 17 listed banks in Mainland China. It provides insights and an outlook on China’s banking sector based on the current business and operating models of these listed banks and the external regulatory environment in which these banks operate.