PwC’s latest China Banking Newsletter revealed continued narrowing of Net Interest Margin is leaving marks at most banks in China with smaller lenders feeling the worst effect. That’s the bad news. The good news is loan quality is stabilizing.

Credit in China’s economy continued to grow at a brisk pace in the first half of 2017.

Household debt, driven by mortgage loan growth of 30% year-on-year, was the fastest growing sector.

Return on Assets (ROA) and Return on Equity (ROE) fell across all the banks surveyed.

At the end of June 2017, total assets of the listed bank stood at 161.98 trillion yuan, up 4.21% for the same period.

“Net profits continue to grow across all four bank categories,” says James Tam, Financial Services partner, PwC Hong Kong. “There was a slight increase in the rate of growth among the largest banks, but growth is slowing overall. There has been a marked drop-off in the previous rapid growth of City and Rural Commercial Banks.”

In the first half of 2017, loans to customers grew rapidly, while interbank assets saw negative or low growth. These trends reflect the efficacy of regulatory measures, which have tightened risk control, as well as the enhanced role of banks in servicing the real economy.

The slowdown in profit growth was largely due to the continuing compression of net interest margins (NIM) and net interest spreads (NIS). Again, the Large Commercial Banks were spared the worst of the pain – their NIM narrowed by 11 basis points (bps) year-on-year. The Joint-stock and City Commercial Banks experienced a more dramatic squeeze of 40 and 41 bps respectively.

According to PwC large Chinese banks are taking notice of Fintechs and pursuing alliance with tech companies to as part of their growth strategy. This listed four notable partnerships between March and August 2017:

China Construction Bank and Ant Financial to jointly promote on-boarding of CCB’s credit card business online and cooperation of channels and e-payment offline, information sharing between credit systems of both parties.

Industrial and Commercial Bank of China and JingDong to jointly explore collaborations in Fintech, retail banking, consumer finance, corporate credit, campus ecosystem, asset management and personal joint accounts.

Agricultural Bank of China and Baidu to jointly build financial intelligence bank and consumer profiles by exploring the application of customer intelligence, precise marketing, consumer credit rating, risk supervision, robo-advisors and chatbots.

Bank of China and Tencent to collaborate in cloud computing, big data analytics, blockchain and AI, and build ecosystems of inclusive financing, cloud financing, smart financing and TechFin.

Bank of Communications and Sunning collaborate in smart financing, full financing, cash management, international expansion and business diversification.

“These alliances give the banks access to innovation that is not encumbered by legacy systems,” says Jimmy Leung, Financial Services leader, PwC China. “The tech companies, in turn, get access to well-established large-scale distribution channels and a bigger talent pool. One of the main challenges for both parties is the cultural adjustment.” 

Sourced from Fintech Innovation