The 2015 Listed Banks' Results Analysis

Both the domestic and international economic and financial markets fluctuated wildly in 2015 and the downward pressure on the Chinese economy continued.

The Chinese banking industry is facing a complex environment. On one hand, economic growth is lower, interest rate liberalization continues and the rapid development of internet banking is bringing challenges and pressures to commercial banks. Meanwhile the central bank is using multiple mechanisms to support the real economy and avoid a hard landing. The measures, including interest rate reductions and cancellation of the deposit rate ceiling, have caused a degree of negative impact to the traditional deposit and loan business margins of commercial banks.

Currently, there are more than 20 listed banks (A and/or H) in the market. Our analysis focuses on five State-owned commercial banks and eight nation-wide Joint Stock commercial banks. The dominant asset size and profit level position of these 13 banks provides a good proxy for all listed banks.

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

Findings include:

• Continuous decline in profit growth
  The profit growth of listed commercial banks declined in 2015. There were two main factors for the significant slowdown albeit the reasons are multifaceted. Firstly, the narrowing spreads due to the six interest rate cuts since 2014 and continuing interest rate liberalization and secondly, the substantial increase in non-performing loans and credit asset impairment driven by the continued deterioration in credit quality which led to the compression of profit margins of the major banks.
  
• Clear surfacing of credit risk
  Credit quality has declined further and all 13 listed commercial banks have shown an increase in both Non Performing Loan balances and ratios. Based on trends in the overdue impairment rates, the credit risk is increasing. Write-off, restructuring and disposals of loans appear to be the more important tools that the banks are using for management of their NPL position, which in turn will cause pressure on the banks' operating performance.
  
• The development trend and strategy in asset-backed securitization
  Following 10 years of development, the asset-backed securities market is expected to reach a record high in 2016. We expect five development trends to emerge in 2016 and present a “three step” securitization strategy for those commercial banks that are still pending for regulatory approval.

This report is available in simplified Chinese only.