Business / Markets

Banking on brighter prospects

By Jiang Xueqing (China Daily) Updated: 2014-04-03 14:41

China CITIC Bank Corp Ltd's nonperforming loans increased 62.9 percent to 19.97 billion yuan last year.

The growth of bad loans requires relevant banks to set aside a larger amount of allowances for loan impairment losses to NPL, thus narrowing the banks' profits, which are also reduced by the liberalization of interest rates.

Banking on brighter prospects

Banking on brighter prospects

China will lift its control over deposit rates in one or two years, said Zhou Xiaochuan, governor of the People's Bank of China, at a news briefing on March 11. That will lead to a further compression of the banks' net interest margins.

Interest rate liberalization will put higher pressure on profit growth for the banks whose branches are concentrated in cities where the competition is more intense than in county areas, said Ni of Greenwoods Asset Management.

Among the four largest lenders, ABC faced less pressure on net interest margins because the county area banking business accounted for nearly 40 percent of its total operating income.

With ongoing economic recovery in the United States and Europe, BOC also felt less stressed because its overseas assets amounted to $630.8 billion by the end of 2013, contributing nearly 26 percent of its total assets.

"Although China's commercial banks face mounting pressure, they are still likely to maintain a relatively optimistic operating situation," said Guo of the Central University of Finance and Economics. "That's because the banks have improved their abilities in corporate governance, risk-resistance and market-oriented management after several years of banking reform."

Furthermore, financing conditions remain tight this year, thus putting the banks in a favorite environment where the demand for loans exceeds the supply, he added.

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