Growing number of private banks doing well
September 5, 2017 Category Finance, Weekly
China’s growing number of private banks are expected to keep posting higher-than-average net interest margins, according to analysts. At the same time they are being urged to expand their fundraising channels to trim a heavy reliance on interbank lending, amid tighter regulatory scrutiny. The average private banking net interest margin was 4.86% at the end of June, more than double the industry average of 2.05%. Net interest margin is the difference between interest a bank gains on its assets, or loans and investments, and the interest it pays out on its liabilities, or deposits, as a proportion of its assets.
“It’s a case of ‘so far so good’ for Chinese private banks,” said Zhao Yarui, Senior Researcher at Bank of Communications (BoCom), noting the higher net interest margins could also reflect higher risk appetite than traditional banks. Rebecca Fu, Partner at consultancy Roland Berger, added that China’s growing community of private banks “are differentiating themselves as a niche to cater to the under-served group of small business and individuals”. Private banks are becoming increasingly dependent on evolving technology and the internet, as their physical networks are limited to having just one outlet only, in the city in which they are headquartered, she said. Fu predicts the number of private banks could at least double within the next two to three years, with the central government encouraging their growth, backed up by better regulation in the banking sector, she added.
China has approved the setting up of 17 private banks since 2014, at least 15 of which are already operational. Their average bad loan ratio was 0.7% at the end of June, compared with an banking industry average of 1.74%.
Three of China’s “big four” state-owned banks posted an increase in net profit in the first half of the year. The Industrial and Commercial Bank of China (ICBC), the world’s biggest lender by total assets, recorded a net profit of CNY153.7 billion, up 2% year-on-year. Its net interest income climbed by 7.1% to account for three quarters of the CNY336.7 billion revenue. The net profit of Bank of China (BOC) surged 11.5% year-on-year to CNY103.7 billion, the largest rise among the “big three,” as its revenue dropped 5.4%. The Agricultural Bank of China (ABC) saw net profit grow 3.3% to CNY108.59 billion. The NPL ratios of the four largest commercial lenders by assets all dropped from the end of last year.
China’s big four state-owned banks significantly slowed their lending pace in the first half of this year in response to a government call, and devoted 90% of their CNY1.3 trillion of new mortgages to first-time homebuyers. Nationally, mortgages outstanding grew 30.8% year-on-year in the first half to CNY20.1 trillion, according to the People’s Bank of China (PBOC).
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