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Chinese banking sector 2021 review and 2022 outlook

Published date: 27 April 2022

Last year marked the beginning of China’s 14th Five-Year Plan. Having realized its first centenary goals, the Communist Party of China (“CPC”) celebrated its 100th anniversary and embarked on a new journey to the second centenary goals.

In 2021, amid complicated risks and challenging circumstances at home and abroad, the CPC and Chinese Government also led the country to work as one in response to COVID-19, pursuing economic and social development, and attaining remarkable achievements.

Overcoming the impact of COVID-19, China’s banking sector made new strides in improving its capacity to serve the real economy, preventing systemic risks, and achieving high-quality development. By the end of 2021, total assets of commercial banks had reached RMB288.6 trillion, up 8.6% year-on-year, falling back to single-digit growth. Asset expansion in the financial system also moderated. Outstanding non-performing loans (“NPLs”) amounted to RMB2.8 trillion, representing an NPL ratio of 1.73%, down 0.11 percentage points from end-2020.

The quality of credit assets remained stable. China’s new yuan-denominated loans totaled nearly RMB20 trillion, with the balance of medium- and long-term loans to the manufacturing sector increasing by almost 30% year-on-year, loans for technology research and development up 28.9%, green credit rising by 21%, and the growth of inclusive loans to small and micro businesses reaching nearly 25%. All of these loans effectively supported the recovery and development of the real economy. Risks in key areas remained under control, with macro leverage ratio dropping by about eight percentage points. The high-risk shadow banking sector continued to shrink, great progress was made in non-performing asset disposal, and positive trends were seen in the hidden debt of local governments. The momentum of the real estate bubble and “financialization” was reversed and the resilience of the banking sector against the risk of external shocks was enhanced further.

Looking ahead to the rest of 2022, China will confront opportunities and challenges in its social and economic development. The CPC will hold the 20th National Congress, which will have a far-reaching impact on China's future economic and social development.

As the COVID-19 pandemic should be contained by the end of 2022, the banking sector will need to keep providing substantial financial support to achieve the “dual carbon” goals and address climate risks. China’s banking industry will also stand to benefit from these favorable external factors.

However, there are still significant uncertainties in the external, global environment. China’s economic development is facing “triple pressure” from a demand contraction, supply shocks, and weakening expectations. Technological advancements and regulatory policy changes continue to reshape financial development and market competition. These factors will constantly expose the Chinese banking sector to new challenges.

To seize opportunities and address risks and challenges, the banking sector could adopt the following measures: adhere to the development direction of "serving the real economy, preventing and controlling financial risks and deepening financial reform", and explore new profit drivers in business model transformation. It should properly manage the relationship between asset size and asset quality to achieve robust, sustainable growth, and attach great importance to risk prevention and controls to be fully prepared for the possible worst-case scenarios. The sector must also fulfill its corporate responsibilities and incorporate environmental, social and governance (“ESG”) requirements into every aspect of operations and management, continue to deepen digital transformation, take advantage of digital technologies to improve the quality and efficiency of development, and invest continually in talent to improve leadership and professional skills.

This Chinese banking sector 2021 review and 2022 outlook is the 14th in a series of analytical reports. In this edition, the Deloitte China FSI research team reviews 2021 economic and financial development, analyzes the performance and business operation of Chinese listed banks in 2021, and covers a host of hot topics.

Taking 10 representative commercial banks in China as a sample, the report also provides an overview of the Chinese banking sector’s achievements in 2021 and identifies key trends in its future development based on a systematic analysis of profitability, assets, liabilities, and the capital position of Chinese listed banks. It also gives an overview of business development, operating model, and regulatory change in the sector.

To draw on the best practical experiences of Chinese banks’ international peers, the report also analyzes six non-Chinese global systemically important banks (“G-SIBs”) that rank 5th to 10th in the Top 1,000 World Banks 2021 of The Banker, a British magazine (see Chart 2).

This report also presents our experts' insights on various industry hot topics, including the analysis of banks’ strategic deployment at the beginning of the 14th Five-year Plan; new rules on corporate governance and their implications; practices and suggestions for the reform and development of rural cooperative financial institutions; a study of the Chinese financial culture; an overview of fintech subsidiaries of banks; and the strategies for banks to accelerate and stay ahead in wealth management. The Chinese banking sector 2021 review and 2022 outlook report is as a valuable reference for Chinese commercial banks as they embark on a new journey towards the goals of the 14th Five-year Plan.

Chinese banking sector 2021 review and 2022 outlook

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1. 2021 macroeconomic and financial review

2. Analysis of listed banks in 2021

2.1 Profitability
2.2 Assets
2.3 Liabilities
2.4 Capital position

3. Observation of listed banks' business in 2021

3.1 Real estate risks were defused in an orderly way, and capital was steadily channeled to high-quality property enterprises to promote virtuous development in the sector
3.2. Inclusive finance has been growing continuously at speed, with multiple measures taken to improve its quality and efficiency and promote sustainable development
3.3 Retail banking registered continuous growth, strategic transformation saw solid progress with risk management and controls strengthened further
3.4. Acceleration in technology adoption, explore innovative service models
3.5. Opening up new horizons in a shifting landscape as the transition period of new asset management regulations ends

4. Hot topics insights

4.1. Observation and analysis of banking sector’s strategic deployment in 2021
4.2. Understanding the new rules on corporate governance for banking and insurance institutions and their implications
4.3. Practice and suggestions on the reform and development of rural cooperative financial institutions
4.4. Strengthening the financial culture to support banks' development
4.5. An overview of fintech subsidiaries of banks and the competition
4.6. Customer-centric strategy drives the banking sector's organization and talent transformation in a digital era
4.7. Family offices in China—a trillion-dollar market
4.8. Practical considerations on integrating climate risk into the credit risk management system of commercial banks

5. 2022 macroeconomic and banking outlook

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