Slower profits seen for China banks
Print Edition
RATING agency Fitch said yesterday that major Chinese banks are likely to show subdued earnings growth for 2015 amid margin compression and asset depreciation.
Net profit of China’s banking sector grew only 2.4 percent in 2015, a drop from the 9.6 percent year-on-year growth recorded in 2014, data from the China Banking Regulatory Commission showed.
Fitch said the financial statements of major banks — to be released next week — will confirm the slower profit growth. It is likely to decline further this year unless the authorities relax the minimum non-performing loans’ provisional requirement of 150 percent, which is weighing on the liquidity of the banks.
Official data showed that system-wide non-performing loan ratio was 1.67 percent at end-2015, up from 1.25 percent a year ago. The total provisions commercial banks hold to cover possible bad loans amount to 2.3 trillion yuan (US$354 billion) by the year end.
Fitch said a regulatory relaxation would run counter to the need for conservative provisioning at a time when asset quality was deteriorating and concerns existed about the level of non-performing loans.
Besides, changes in investment income or revaluation reserves may also signal deterioration in the quality of non-loan credit, especially in medium-sized banks.
With interest margins narrowing on the prospect of further interest rate cuts this year, the expansion of non-interest income is likely to be a key earnings driver this year, Fitch said. But it warned that a significant shift into the wealth-management products could lead to increased credit and liquidity risks for banks.
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