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Embrace the new era with ramped up efforts in quality development

Chinese banking sector 2020 review and 2021 outlook

2020 marks the concluding year of the 13th five-year plan, which is also an eventful year in history. China’s banking sector stood the test of COVID-19 by prudently tackling the risks, maintaining stable operations, and making notable headways to support the recovery of the real economy. In 2020, the total assets of China's banking sector saw a steady expansion, with improved asset quality. Based on the indicators data published by CBIRC, by the end of 2020, the total assets of China's banking institutions climbed 10.1 percent year-on-year to RMB319.7 trillion. Their nonperforming loans ratio stood at 1.84 percent, 0.02 percentage points lower from the end of 2019. The banking sector has provided strong financial support to the national policy goals of stabilizing the six fronts (employment, finance, foreign trade, foreign investment, domestic investment and market expectations) and guaranteeing the six priorities (jobs, livelihoods, development of market entities, food and energy security, stable operation of industrial supply chains, and smooth functioning at the community level). Specifically, RMB loans increased by RMB19.6 trillion throughout the year, RMB2.8 trillion up year-on-year; inclusive loans to small and micro companies grew by 30.9% year-on-year. To guard against systematic financial risks, the banking institutions strengthened their risk defense ability by disposing non-performing assets of RMB3.02 trillion, and setting aside a loan loss provision of RMB1.9 trillion, an increase of RMB113.9 billion over 2019. At the end of 2020, the provision coverage ratio stood at 182.3%, and the loan loss provision coverage ratio was 3.5%, both maintaining relatively high levels.

At the beginning of the 14th five-year plan, 2021 is a year of great importance in advancing China’s modernization process. Currently, there are still great uncertainties from the pandemic and the external environment, which cannot provide strong support to economic recovery, and various risks associated with the pandemic cannot be underestimated. As China fully opens the financial sector and liberalizes the interest rate, intensifying market competition will increasingly squeeze banks’ lending margins, which means banks should place the strategy of competitive differentiation front and center. With the vigorous development of fintech, the regulators put greater emphasis on macro-prudence, which requires financial institutions to focus on cyber and data security, as well as privacy and consumer rights protection when pushing ahead with their digital transformation. To go from big to great, China’s financial industry as a whole will need to address the increasingly diverse challenges and opportunities. Commercial banks should remain prudent and agile in order to timely respond to the market changes, such as regulations, competition landscape and technology advancement.

The Chinese banking sector 2020 review and 2021 outlook is the 13th edition of the analysis report series. In this edition, Deloitte China FSI research team took eight domestic commercial banks as examples while using six foreign systematically important banks as benchmarks, systematically studied the profitability, assets, liabilities, and capital strength of the listed banks in China, revealed some of their remarkable achievements in 2020, and identified areas of improvement in the future. Notably, we have incorporated RORWA and ROROC as two additional indicators in this year's analysis to better reflect the core competitiveness of commercial banks. Besides, we have leveraged our experts team to provide leading insights in various industry hot topics, i.e. green finance, asset management, fintech regulation, digital empowerment, capital replenishment, and low-carbon transition. We believe this report serves as a valuable reference for Chinese commercial banks when they embark on a new journey towards the goals of the 14th five-year plan.

(Simplified Chinese version only)

Foreword

Foreword

1. 2020 economic and financial review

2. Analysis of listed banks' performance in 2020

2.1 Profitability

2.2 Assets

2.3 Liabilities

2.4 Capital position

3. Observation of listed banks' business in 2020

3.1 Retail banking takes off, strategic transformation takes effects

3.2 Committed to social responsibility and development of inclusive green finance

3.3 Net-value products oriented transformation gains traction, non-fixed income assets increase

3.4 Acceleration in technology adoption, explore innovative service models

4. Hot topics insights

4.1 Observation and analysis of banking sector’s strategic deployment at the beginning of the 14th five-year plan

4.2 Fintech regulation strengthened: trends and tips

4.3 Data governance and applications to enhance value realization

4.4 Bank value measurement: identify value composition, drivers, and growth by "The Fourth Report"

4.5 Integration of business and finance drives sustainable business and profit growth

4.6 Big banks seek to replenish capital via implementation of China's TLAC

4.7 Digital tools enable institutions in targeted and effective AML self-assessment

4.8 How can banks achieve low-carbon transition to align with China’s carbon neutrality goals

5. 2021 economic and banking sector outlook

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