China's banks see profits grow faster in H1, PwC says

Chinese banks' profits grew faster during the first half of 2018, but they still need to rein in risks in asset quality,  PwC warns in a latest report.

The report, covering the interim financial results of 15 A-share and H-share listed banks, found that their combined assets totaled 153.88 trillion yuan (US$22.46 trillion) as of the end of June, an increase of 3.56 percent year on year but a slowdown from the previous year’s 4.09 percent growth.

Total net profit for the 15 listed banks came up to 824.942 billion yuan during the same period, up 6.39 percent from a year ago. The growth figure is faster than the 4.11 percent expansion posted in the first six months of 2017.

“The expansion of China’s large commercial banks’ interest-generating assets, along with increasing loan yields, contributed to the growth of net interest income and drove profit growth,” said Jimmy Leung, PwC’s China financial services leader .

He noted that there was a greater mix of drivers powering the profit growth for joint-stock commercial banks.

From January to June, the non-performing loan ratios for the lenders have continued to fall in the last few years. By end-June, their average NPL ratio stood at 1.53 percent, down by 0.04 percentage points from the end of 2017.

However, the overdue loan ratio rose by one basis point to 2.01 percent. This implies that uncertainty around asset quality still persists.

Controlling credit risks came as the banks stepped up their efforts to manage bad loans and boost provisions. In the first half of 2018, the reported banks saw an average provision coverage ratio of 194.02 percent, up 16.71 percentage points from the end of 2017.

The rising provision coverage ratio shows that Chinese banks are strengthening their ability to counter risks, said Michael Hu, PwC's China financial services partner.

But banks need to stay vigilant as some high -risk areas like real estate loans, local government debt and financial technology have drawn the attention of regulators, according to the accounting firm.

As this year marks China’s 40th anniversary of its opening up and reform, the country is continuing to reform the finance sector and banks will face several macroeconomic challenges, including the Sino-US trade dispute, PwC said.

Looking ahead, Leung believes that new regulations in asset management will prompt banks to change their operating models for wealth management while further opening-up will bring new opportunities. But banks need to enhance risk controls and develop new products to stay competitive, he added.