Revenue derived from financial management product posted strong gains amongst China’s listed banks last year.
Most of China’s financial institutions saw only modest net profit gains in 2016 as interest rate margins narrow and interest revenues drop.
Listed lenders are now turning to their non-interest revenue sources to bolster profits, with earnings from financial management skyrocketing in some cases.
Many listed Chinese banks posted a surge in financial management revenue last year, at rates of between 20 to 60%.
China Merchant Bank’s financial management revenue leaped by just over 60% last year to reach 14.333 billion yuan, while Ping An Bank saw an increase in financial management processing fee revenue of over 40%.
China CITIC Bank posted a year-on-year gain of over 20% in financial management earnings, as did China CITIC, with an increase of 28.93% compared to the previous year driven by asset management and agency financial management business.
“The halcyon days of the banking sector will never come back again, and it is necessary to grow by means of non-interest revenue, to supplement sluggish growth or potentially even downward pressure on net interest revenues at present,” said vice-head of China CITIC Fang Heying.
In response to increasingly difficult market conditions China’s banking sector is currently shifting to a “light capital” operations structure, with economization of capital and increases in the efficiency of asset usage.
The expansion of financial management operations is a key part of this transition, with all of the listed banks posting scale gains in 2016.
China Merchant Bank’s financial management balance breached the 2 trillion yuan threshold last year, while CITIC Bank’s financial management product scope hit 1.1 trillion yuan.
According to Industrial Bank. Co. head Tao Yiping, the rapid expansion of the market for financial management products will effectively satisfy the increasingly pluralized demand for financial services within the real economy, as well as vigorously advance the marketization of interest rates.
This growth in financial management products is not without risk, however, with the off-balance sheet financial management products of the Chinese banking sector posting year-on-year growth of 30% in 2016, outpacing growth in loans during the same period by 20 percentage points.
China currently lacks any official banking financial management supervisory and administrative measures, so the People’s Bank of China plans strengthen regulation of off-sheet operations risk by including off-sheet financial management products within the scope of its broad definition of credit during its first quarter Macro Prudential Assessment.