For Chinese banks, this year will be steady as their assets will likely grow by around 10 percent and nonperforming loan ratio will be below 2 percent, according to a report of the China Banking Association released on Aug 4.
“China’s steady and upbeat economic conditions, prudent and neutral monetary policy and the banking industry regulator’s effective regulatory measures have all contributed to the healthy operation of the Chinese banking industry,” said Lian Ping, chief economist of Bank of Communications and a principal author of the CBA report.
The report said Chinese banks had total assets worth 181.7 trillion yuan ($27 trillion) in 2016, up 16.6 percent year-on-year.
Outstanding debts owed to them reached 168.6 trillion yuan last year, up almost 17 percent year-on-year. Net profit in 2016 totaled 1.65 trillion yuan, up 3.5 percent year-on-year.
Lian said both assets and debts will likely grow by about 10 percent this year and next year, while profit will grow at the same rate as in 2016.
“Influenced by prudent and neutral monetary policy, interest rate liberalization and internet finance, Chinese banks are facing the pressure of cost increase,” said Lian. “At the same time, enterprises are having larger demand for loans as China’s economy has improved in the first half of this year, so banks have stronger capabilities in loan pricing, and the interest rate spreads can be steady.”
The CBA report said the nonperforming loan ratio of Chinese banks in 2016 was 1.74 percent, up 0.07 percentage point compared with 2015.
“Chinese banks’ nonperforming loan ratio has been a little higher than 1.7 percent, and we expect the ratio won’t exceed 2 percent in 2017, which is low from a global perspective,” said Lian.
According to him, there are some new characteristics of China’s nonperforming loans. Small and micro-sized enterprises in Jiangsu and Zhejiang provinces are gradually getting rid of nonperforming loans, while there are a few new risks in central and western regions as well as for large and medium-sized enterprises.
“Overall, the risks of Chinese banks’ nonperforming loans are controllable,” said Lian, adding that China’s sound economy and banks’ strong profitability are positive for eliminating nonperforming loans.
The CBA report also said Chinese banks are exploring innovative business models. For example, they are offering loans to high-tech startups with equity stake in the latter as collateral. By the end of 2016, Chinese banks in Beijing had offered 4 billion yuan in such loans.
“Chinese banks will deepen business transformation and innovation and improve capabilities of serving customers,” said Pan Guangwei, vice-president of the CBA.