Review and Outlook of China Banking Industry 2018

Our report covers China's economic and financial overview, analyses the latest results of Chinese A-share and/or H-share listed banks in 2018, and provides an outlook of the Chinese banking sector for 2019.

Reviewing 2018, under the overall background that "de-leveraging and tightened supervision" was reduced to "stabilizing leverage", shadow banking activities were brought under regulation. The People’s Bank of China (PBOC) lowered the reserve requirement ratio five times throughout the year, hence financing for small and micro businesses and private enterprises was enhanced as monetary policy moved towards being more neutral and looser. In April, new asset management regulations were promulgated, while in October, measures for the administration of wealth management businesses and the Measures for the Administration of Wealth Management Subsidiary Companies of Commercial Banks were published. Along with successive releases of above three significant wealth management documents, the ecology of banks' wealth management businesses was changed, and a new setup was formed in the asset management industry. Due to gradual implementation on specific measures of China's financial opening-up, China’s banking industry has become more global with accelerated steps in the process of opening-up.

Since the banking industry tightened supervision and stabilized leverage, shifting from virtual economy to real economy, though assets and liabilities grew slowly, even negatively, the overall performance indicators were positive, with increased profitability at the guarantee of stability and gradually stabilized asset quality. In active response to national policies, at the same time of making great efforts to develop inclusive credit, poverty alleviation credit and green credit businesses, banks were gradually committed to developing centered on quality improvement, paying more attentions to lifting the efficiency of their own capitals, as to establish a high-quality development mode full of strong value creation capabilities.

From the perspective of bank transformation, cloud computing, big data, artificial intelligence and blockchain technology have entered the stage of comprehensive application in the banking industry. According to the disclosed annual reports of listed banks, "Fintech", "Inclusive Finance" and "Asset Management" have become the key words of many Banks. The transformation of banks, the resolution of non-performing loans and the implementation of new financial instrument standards all pose new challenges to the profit growth of Banks.

Looking ahead to the future, banks will accelerate their transformations of wealth management businesses and disposal of non-performing assets, and make more investments in inclusive finance. Therefore, there will be a golden development opportunity for small and micro businesses and private enterprises. In the domestic finance market, liquidity will be stable and a loose credit cycle will begin. In such a situation, foreign capital is likely to come rushing into the market, which will accelerates the integration of China's financial industry into the global financial system, so that the business model of "foreign capital holding + local operation" will not only increase the market share of foreign capital but also enhance the operation and management capabilities of domestic institutions.

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