The first half of 2015 listed banks result analysis

Insights

The first half of 2015 listed banks result analysis

Our new report examines the Chinese listed banks' performance in the first half of 2015 following the publication of their half-year results. The paper analyzes their results and management discussions and explores the key challenges faced by the Chinese banking industry.

Both the domestic and international economic and financial situations remained complex and difficult through the first half of 2015. There is increasing downward pressure on the Chinese economy. The Chinese banking industry is facing an increasingly complex environment. With the slow-down in economic growth, continued moves toward interest rate liberalization, the promotion of financial disintermediation and the rapid development of internet banking as well as other factors both challenge and pressure the commercial banks. On the other hand, the proactive fiscal policy, easing monetary policy, and the further refinement of the loan-deposit ratio requirements has helped to improve the policy and the market environment which the commercial banks face. Combining these two aspects, the China banking industry in the first half 2015 has faced both challenges and opportunities.

Currently, there are more than 20 listed banks (A and/or H) in the market. We selected five State-owned commercial banks and eight nation-wide Joint Stock commercial banks for our analysis. We believe that these 13 banks are representative of the listed banking industry for their assets and profits dominate the listed banks sector.

By size and profit level, these banks can be classified into three categories:

Asset Size (RMB Trillion)

Profit
(RMB 100M)

Bank

16-23

900-1500

ICBC, CCB, ABC, BOC

4-8

200-400

BoComm, CMBC, CIB, SPDB, CITIC, CMSB

<3

<200

CEB, Ping An, Hua Xia


Significant down of profit growth

A slowdown in profit growth was a common theme in the annual reports of 2014, and it appears more obvious in the first half of 2015. There are two main factors for the significant slowdown even though the reasons are multifaceted: first, the narrowing spreads due to the four interest rate reductions since 2014 and the interest rate liberalization, the second is the increased provisioning driven by the continued deterioration in asset credit quality.

Decline of asset credit quality

The asset credit quality has declined further and all 13 banks have shown an increase in both Non Performing Loans (NPL) and the NPL ratio. Based on the trends in the overdue impairment rates, the outlook for asset credit quality is still not optimistic in the short term. Write-off, restructuring and disposals of loans would appear to be the important tools the banks are using for NPL control measures to minimise the adverse impacts on banks' operating performance.

Implementation in advance for IFRS 9

IFRS 9 will take effect in 2018 and will have an impact on loan provisioning, the classification of financial instruments and the measurement of the hedging accounting. Banks need to evaluate the impact on their business, systems, operations and financial performance, and at the same time allow sufficient time to plan for the implementation for IFRS 9 in advance of the effective date.

(Simplified Chinese version only)
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