Lenders ‘need new sources of growth’ as NPLs up

China Daily (Canada) - - LIFE - By JIANG XUEQING jiangx­uqing@chi­nadaily.com.cn

An anal­y­sis by in­ter­na­tional ac­count­ing firm Price­wa­ter­house­Coop­ers (PwC) of 30 A and H-share listed banks found that the Chi­nese bank­ing sec­tor was in ur­gent need of new sources of growth— as the sec­tor con­fronts slower profit growth, shrink­ing in­ter­est mar­gins and ris­ing non­per­form­ing loans.

PwC found that as of June 30, the over­all loans bal­ance for the 29 listed banks that dis­closed NPL in­for­ma­tion in­creased 10.06 per­cent from the end of 2015 to 1.13 tril­lion yuan ($169 bil­lion). Dur­ing the same pe­riod, the NPL ra­tio went up four ba­sis points to 1.66 per­cent. On­top of this, the pro­por­tion of spe­cial men­tion loans, po­ten­tially weak loans pre­sent­ing un­war­ranted credit risks, rose 18 ba­sis points to 3.57 per­cent.

“The NPL bal­ance grewrapidly de­spite the fact that the listed banks stepped up write­offs, pack­ag­ing and sell­ing of NPLs in the first half of 2016. The sit­u­a­tion will con­tinue to worsen in the sec­ond half due to shrink­ing net in­ter­est mar­gins and large in­creases in NPLs and spe­cial men­tion loans,” said Jimmy Leung, PwC China Fi­nan­cial Ser­vice Leader.

Look­ing for­ward, Zhou Zhang, PwC China Fi­nan­cial Ser­vice Part­ner, said on Wed­nes­day the banks will face more pres­sure.

“The pres­sure will be huge for Chi­nese banks to in­crease net prof­its be­cause ris­ing NPLs will lead to fur­ther growth in loan loss pro­vi­sions,” Zhou said.

“Even worse, in­ter­est mar­gins will keep shrink­ing un­der the in­flu­ence of bench­mark in­ter­est rate cuts by the cen­tral bank.”

In the first half of 2016, the over­all net prof­its of 30 listed banks in­creased by 4.6 per­cent from the pre­vi­ous year to 774.45 bil­lion yuan, the PwC news­let­ter said.

Net in­ter­est in­come of the banks fell as a pro­por­tion, while non-in­ter­est in­come rose sig­nif­i­cantly. For the big com­mer­cial banks, their non­in­ter­est in­come rose 7 ba­sis points year-on-year to 34 per­cent of the to­tal in the first half.

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