A new report from China’s peak body for the banking sector has expressed confidence in its near-term prospects.
The “China Banking Sector Development Report (2018)” (中国银行业发展报告（2018）) released by the Chinese Banking Association on 11 July points to “a trend of improvement in the overall operating environment of the Chinese banking sector in 2017.”
“Banking sector balance sheets continue to maintain growth and growth in net profits has markedly recovered…the quality of banking sector assets is trending towards stabilisation.”
The report notes that net interest spreads rebounded for three consecutive quarters starting from the second quarter of 2017, rising from 2.03% in the first quarter to 2.10% in the fourth quarter, and driving improvements to bank business performance.
According to the report China’s commercial banks posted net profits of 1.7477 trillion yuan in 2017, for year-on-year growth of 6%.
As of the end of 2017 the non-performing asset balance of Chinese commercial banks was 1.71 trillion yuan, for an NPL ratio of 1.74%, and the fifth consecutive quarter that the NPL ratio had plateaued.
Growth in banking sector assets has furthered eased, with domestic and foreign currency assets expanding to 252 trillion yuan as of the end of 2017, for YoY growth of 8.7%.
This growth figure marks a deceleration of 7.1 percentage points compared to the end of 2016, and the first time since 2001 that the reading has fallen to single digits.
Loans as a share of total assets have steadily risen, while off balance-sheet business has continued to contract as Beijing pushes ahead with its deleveraging campaign.
The report further notes that the ongoing deleveraging campaign and tighter regulation are having a significant impact upon economic conditions, raising market risk and liquidity risk for commercial banks.
These risk levels are “under control overall,” however, with the liquidity ratios of commercial banks in China seeing improvements in 2017 compared to 2016.