PwC report highlights growing pressure on listed lenders’ profit growth

China’s listed banks’ net profits continued to grow in 2016, but they will face increasing pressure to maintain this growth, according to a report issued by PricewaterhouseCoopers on Monday.

The report analyzed the 2016 annual reports of 27 A-share and H-share listed lenders — six large commercial banks, seven joint-stock commercial banks, nine city commercial banks and five rural commercial banks.

The net profits of the 27 listed companies in 2016 totaled 1.32 trillion yuan ($191.9 billion), increasing 3.2 percent year-on-year, it said.

But the report showed that all banks were facing different challenges.

Pretax profits were flat or declined for the large commercial banks, as net interest income declined and growth in fee-based income was slow.

At some joint-stock and city commercial banks, operating profit growth remained healthy, but net profits were affected by provisions.

Narrowing of the net interest margin and increases in asset impairment losses constituted a double pressure on net profits, the report said.

“Asset expansion is the main way these banks have been stabilizing profit growth,” said Vincent Yao, financial services partner of PwC China. “But fees from intermediary business are also important and they increased as a proportion of total interest and fee income across all the listed banks. ”

In terms of asset-liability structure, the listed banks continued to adjust their asset structures by generally expanding their securities investment assets and reducing interbank assets. Banks increased the proportion of interbank deposits, which was one of the fastest-growing liability categories in 2016.

Nonperforming loans remained a concern. The NPL ratio increased to an average of 1.67 percent at the year end, while the ratio in 2015 was 1.61 percent. The NPL balance was up 16.8 percent year-on-year to reach 1.15 trillion yuan.

The listed banks effectively tackled their NPL balances through a variety of methods in 2016 including restructur- ing, writeoffs and transfers. The banks were clearly intent on getting credit risk under control — writeoffs and transfers reached 515.3 billion yuan in 2016, increasing 26.2 percent year-on-year.

Jimmy Leung, financial services leader for PwC China, said the banks need to prepare for new compliance requirements and make better use of fintech to achieve channel transformation and deliver service innovations.