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Amid global uncertainties, banks in mainland China still experiencing growth, finds KPMG analysis

mainland Chinese banks make up the second largest grouping within the Top 1,000 Banks, narrowing the gap with the US
2019-08-29 17:45 1809

HONG KONG, Aug. 29, 2019 /PRNewswire/ -- Banks in mainland China are still experiencing growth despite global uncertainties, according to KPMG's 2019 survey of the sector. The report notes that total assets and liabilities in China's banking sector increased steadily in 2018 and profits continued to grow, although at a slower pace. 

Simon Gleave, the Regional Head of Financial Services of KPMG Asia Pacific, said: "China's reforms of the financial sector are transforming the industry landscape. The sector needs to take on a more important role in wealth management and in the transition to a market economy, which coincides with its long-term goal of further opening up the market and drawing on international experience." He added that in the future, the financial sector can better serve the real economy by further opening up to foreign companies, actively competing in international markets, and improving the management of domestic financial institutions.

In 2018, the mainland China banking sector's net profit grew at a slower pace amid continuous adjustments in asset structures. Commercial banks posted RMB 1.8 trillion in net profit, an increase of RMB 82.5 billion, or 4.7 percent, compared to the previous year -- 1.3 percentage points lower than the previous year. In the first quarter of 2019, commercial banks' net profit grew 9.4 percent compared to the same period in 2018.

In terms of asset quality, despite a further increase in the size of non-performing credit assets in 2018, overall risk was stable and controllable. At the end of 2018, the balance of non-performing loans (NPLs) at commercial banks stood at RMB 2.03 trillion, representing an increase of RMB 0.32 trillion, or 18.7 percent, from the end of 2017. The average NPL ratio edged up 0.09 percentage points to 1.83 percent, indicating an uptick in NPLs.

In 2018, commercial banks extended more credit, which resulted in steady asset growth. The total commercial bank assets reached RMB 210 trillion at the end of 2018, an increase of 6.70 percent over 2017 -- 1.6 percentage points lower than the previous year. Given growing demand for financial services and the expansion of investment fields in the current year, commercial banks are expected to further strengthen their offerings. Furthermore, assets under management are expected to experience modest growth, and asset structures should continue to improve.

Thomas Chan, the Head of Financial Services Assurance at KPMG China, said: "Since 2018, China's banking sector has experienced some challenges amid a changing economic environment at home and overseas. On the one hand, a relatively loose market environment is conducive to promoting the 'stable growth and structural adjustment' of banking institutions to support the real economy, and the healthy development of small and micro enterprises in particular. On the other hand, from an overall financial market perspective, the sector's need for 'risk prevention and reform' has also increased."

He added: "A series of regulatory requirements released during the past year have had a great impact on the development of commercial banks' asset and wealth management business. Supervision over the sector's risk management has become stricter than ever and has aroused market concerns over the quality of credit assets, the liquidity risk of small and medium-size banks in a volatile financial market, and the credit risk related to property developers. These concerns have caused industry players to review the situation."

Mainland China was the second largest grouping among Top 1,000 Banks listed during the period from 2015 to 2019, with the gap gradually narrowing with the top ranking country, the United States, from 41 banks in 2015 to 33 banks in 2019.

In 2019, China's four largest banks still occupied the top four spots within the overall Top 1,000 Banks ranking. Compared with 2018, six banks entered the list for the first time this year: Jiangmen Rural Commercial Bank, Bank of Ganzhou, Bank of Qinghai, Kunshan Rural Commercial Bank, MYbank and Bank of Jiaxing. It is worth mentioning that 2019 saw China's first private bank, MYbank, enter Top 1,000 Banks ranking.

Sam Shi, China Head of Banking at KPMG China, said: "We see across the sector banks are exploring ways to transform their business and adjust their business structure. Based on our discussions with various leading financial institutions, banks in China are exploring new ideas and approaches for open banking models and digital transformation, as well as looking at the role that big data can play in risk management. Their other major focus is on the opportunities for improving operating systems and solutions that can be offered from the perspective of capital management, talent management and regulation-driven reform."

About KPMG China

KPMG member firms and its affiliates operating in Mainland China, Hong Kong and Macau are collectively referred to as "KPMG China".

KPMG China is based in 23 offices across 21 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Wuhan, Xiamen, Xi'an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 153 countries and territories and have 207,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG's appointment for multi-disciplinary services (including audit, tax and advisory) by some of China's most prestigious companies.

Source: KPMG China
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