Listed Chinese Banks Interim Results Analysis for 2017

In this paper, the professional team of Deloitte China has provided timely analysis relevant to the Chinese banking sector.

• China has intensified its efforts to regulate shadow banking in the country which has resulted in some of the credit being diverted back to the industry's balance sheet. We also observed a slower growth in assets among the mid-size and small banks. As the risk associated with shadow banking gradually fades away, we expect the operating market outlook for banks to improve, in particular among large commercial banks which have been the market liquidity providers.

• The impact of a slower pace of financial products being issued and a structural change of the social financing volume is becoming more visible. The “penetrate and supervise” guidelines which look for deeper transparency through regulation have made it difficult for banks to make use of 'other channels' as intermediaries for shadow lending. As a result, the manipulating leverage within the financial system has been reduced, as well as links among institutions. This will enhance banks' asset transparency and the visibility of banks' risk exposure levels, boosting their capital adequacy and provision coverage, and benefiting their prudent operations.

• In order to avoid the systemic financial risks that might harm the economy, the Chinese authorities have stepped up their regulatory efforts. The explosive growth of the Chinese banking sector has been brought under control and the market has become more familiar with a new normal of 'tight balance'. More regulatory measures may be put forward following the establishment of the Financial Stability and Development Committee under the State Council. Regulatory intent has put more stress on appropriate supervision rather than constraining the development of all shadow banking activities. Moderate growth will be allowed where regulatory compliance is met.