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September 3, 2014

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Home » Business » Finance

Chinese banks pressured to reform

Source: Xinhua | September 3, 2014, Wednesday | Print Edition

CHINESE banks are under increasing pressure to reform under conventional business structures amid lackluster first-half profit.

Net profit of the state-owned Industrial and Commercial Bank of China, the nation’s largest lender, totaled 148.4 billion yuan (US$24.1 billion) in the first six months, up 7.2 percent year on year. However, the growth rate fell 5.2 percentage points from that a year ago.

Profit growth for the other four major state-owned banks — China Construction Bank, the Agricultural Bank of China, the Bank of China and the Bank of Communications — were 12.65 percent, 10.97 percent, 9.17 percent and 5.59 percent respectively, all slower from a year earlier.

Analysts said the impact from interest rate liberalization and booming Internet finance has reduced banks’ revenues from interest rate margins, a traditionally important source of profits for banks.

Even though interest rate margin-based revenues fell during the first half, they remained a major power in generating profits for the banks. Over 70 percent of AgBank and BoCom’s business revenues came from interest income.

Gone is the era when banks can gain easy and fat profits, said Zhao Xijun, vice president of the School of Finance at Renmin University of China.

AgBank Vice President Lou Wenlong said narrowing revenues from interest rate margins will force banks to diversify business and focus on non-interest sectors.

In contrast, smaller banks fared relatively better than the big banks. First-half net profits for China Merchants Bank and Shanghai Pudong Development Bank grew 15.94 percent and 16.87 percent, respectively.

China Merchants Bank said its non-interest income hit 28.3 billion yuan in the first half, up 87.7 percent year on year.

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