Listed Chinese Banks Results Analysis for 2017

Mainly as a result of the direct effect of the "tightened regulation", deleveraging in China in 2017 has made substantial achievements, with banks' total assets growth slowing down significantly, shadow banking credit being diverted back onto the balance sheets and the proportion of interbank assets decreasing. China has stepped up its supervisory financial regulatory efforts with unified regulatory standards, so as to prevent and ward off internal risks accumulated in the financial system in the past two years.

For the first time since 2010, WMPs and off-balance sheet businesses showed negative growths, and interbank assets and liabilities have been decreasing. With regulators' continuing efforts to introduce measures to regulate shadow banking and cross financial products, the interbank, WMPs and off-balance sheet businesses are expected to continue their declining trends. In the future, enterprises will gradually move redundant funds away from shadow banking and turn to on-balance sheet bank loans and/or corporate bond issuances.

The tightened financial regulation and deleveraging have led to a slowing growth of bank assets or even a reduction in their asset value; however, the level of profitability has improved. The macro economy of China has continued to be resilient and credit demand in various sectors have been robust. Financial deleveraging and tight liquidity will lead to wider interest rate spreads, which will in turn increase profitability. Banks will deal with their non-performing loans by continuing to reduce their credit cost through debt-to-equity swaps and asset securitization. Therefore, we foresee that the banking sector’s net profit growth will continue to be better in 2018.

Looking ahead, China will further open up its financial markets to foreign investors and the restrictions of market access will be gradually eliminated. With the effective Asset Management Rules, some off-balance-sheet businesses will have to be brought back onto the balance sheet. This will rein in shadow banking and accelerate financial deleveraging. Under the impact of interest rate liberalization, internet finance and other factors, more and more banks have turned their attention to develop FinTech from the strategic perspective for future transformation.