China banking focuses on credit structure optimisation

PwC said the sector needs to continue to implement strategic initiatives.

China Banking sector has remained stable, with a focus on optimising credit structures and enhancing customer-centric products and services, PwC reported.

“The Central Financial Work Conference in October 2023 offered a clear roadmap for the banking sector’s development,” says James Chang, China Financial Services Leader, PwC China.

PwC China has released its China Banking Newsletter 2023 Review and Outlook, highlighting challenges and opportunities in the banking sector amidst global economic uncertainties.

Despite slower growth in interest income, net profits of the 38 banks covered increased by 1.59% year-on-year (YoY). However, declining loan yields and rising deposit costs led to narrowed net interest margins and decreased interest and non-interest income.

“This is a critical year for China to realise the goals of the 14th Five-Year Plan,” says James Tam, Banking and Capital Markets leader, PwC Hong Kong. 

“China’s growth target is set at around 5%, with the aim of modernising industry and accelerating new quality productive forces. The banking sector will play a key role in this transformation,” Tam added.

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The total assets of surveyed banks grew by 11.46% YoY, with the large commercial banks leading at 12.81%. 

Loan balances increased by 11.15%, with a focus on supporting financial inclusion, small businesses, and green development.

Whilst non-performing loan ratios decreased, attention is required for overdue loans, particularly in joint-stock commercial and city & rural banks. 

The quality of corporate loans improved, but the NPL ratio for retail loans slightly increased.

The overall loan provisioning ratio decreased, signalling declining NPL ratios, but attention is needed to address growing credit risk exposures. 

Customer deposits remained the main funding source, while wealth management product returns rebounded.

“In order to support the economy, the banking sector needs to continue to implement strategic initiatives,” Brian Yiu, Financial Services Partner, PwC Hong Kong, said. 

“A sustainable business model that meets the demands of business and people’s livelihood needs will help build a strong financial services industry for China.” Yiu concluded.